Life insurance is a benefit that can help your loved ones deal with the financial impact of your death. Life insurance provides a financial benefit to dependants upon premature death of an insured person. The death benefit paid from a life insurance policy is a tax-free, lump-sum amount that can be used to replace your income so your family can maintain their standard of living and/or provide for your children or dependents.
Sadly, some life insurance claims are denied by insurance companies, leaving the grieving loved ones in a difficult position. The beneficiary is left with having to deal with the insurance company for the payout or receive nothing at all.
These insurance policies are contracts and are governed by the terms of the policy. As with any contract, each party has certain rights and obligations. A denial is not evidence that the insurance company has done anything wrong. Sometimes the terms of the contract allow for non-payment.
However, it can be difficult to know whether such non-payment of benefits is lawful and consistent with the terms of the contract. That is why whenever a policy of life insurance is denied, you need to understand the meaning of the terms of the contract before you may be satisfied that no money is payable. If the life insurance benefit is denied, having a lawyer review the denial is a great place to start.
In this article, our lawyers discuss the common reasons for life insurance denials and how to avoid or challenge some of them.
Common reasons for life insurance denials are:
- Misrepresentation in the Application
- Exclusionary Terms
- Missed Premium Payments
- Expired Term Life Insurance
1. Misrepresentation in the Application
As part of an application for life insurance, the insurance company will ask you to fill out a few lengthy forms. These forms will contain questions regarding your medical health, risk factors such as smoking, alcohol use, and dangerous hobbies like heli-skiing or scuba diving.
These factors help the insurance company determine the applicant’s risk of death. Based on the assessment of your individual risk factors, the insurer will decide on whether to insure you, the benefit amount available to you and the monthly premium amount payable by you based on this information.
It is important to be truthful and thorough in your life insurance application. If you do not know an answer then do not guess – make sure you provide accurate information. If you do not understand the question then ask for clarification from the insurance sales person or bank representative. Confirm your understanding in writing so there is no confusion on anyone’s part. According to British Columbia legislation, you are required to provide full disclosure to the insurance company. If you misrepresent any of the required information, the insurance company may deny the life insurance benefit to your beneficiary after you die.
In British Columbia, there is currently legislation in place that says if the policy has been in force for more than 2 years, the policy is “incontestable”. This means the insurer would still have to pay even where there was a material misrepresentation on the application form. However, if the insurer can prove that the answers were given fraudulently, they would be allowed to withhold payment. Often, the fight in that circumstance is over the legal meaning of “fraud”.
2. Exclusionary Terms
The life insurance policy will have terms that describe circumstances where benefits will not be paid. Some examples include:
Death by suicide: Sometimes policies will say that if the suicide occurs within a certain time frame (usually the first 2 years of coverage) that benefits will not be paid. This is to discourage people from purchasing policies in circumstances where they are contemplating suicide and want to provide financial security for loved ones. It is not always obvious that the manner of death is suicide. We have represented beneficiaries where there was a dispute as to whether a fatal gunshot wound was deliberate or accidental. In another matter there was a dispute as to whether a drug overdose was deliberate or accidental.
Death due to illegal activities: Most policies exclude circumstances where the death occurred while committing a criminal act. Criminal acts may include driving a vehicle under the influence of illicit drugs or excessive alcohol, operating a motor vehicle at extreme speeds, stealing property etc. Again, it is worthwhile to investigate any allegations of criminal acts as there may be mitigating factors that remove the behaviour out of the exclusionary language.
Death due to acts of war: This exclusion is intended to deny claim for civilians who are killed as a result of a military conflict or war.
These terms are often worded ambiguously and are subject to interpretation. As such, if an insurer is relying on an exclusion under the contract, it is important for a lawyer to review the denial.
3. Missed Premium Payments
To maintain your life insurance coverage, you must pay the monthly premium every month. If you miss your payments, you might lose your coverage and the payments you made with it.
It is important to be aware of the different grace periods your policy may have. The grace periods vary depending on the insurance company, policy type, and the governing law in your jurisdiction. In British Columbia, the legislation allows for a 30-day “grace period” in which you can pay an overdue premium for life insurance.
Sometimes beneficiaries are unaware that their loved one stopped paying the premiums, so they file life insurance claims that eventually get denied. The insurance companies deny such claims because the policy would not have been active at the time of the policyholder’s death due to the non-payment of the premiums. Therefore, it is important that you stay on top of the regular premium payments to ensure active insurance coverage.7001
4. Expired Term Life Insurance
A term life insurance policy is a policy that terminates at a specific age (usually 65). If you pass away after the term has expired, no life insurance benefits are payable. Once the term expires, you may be able to apply for a policy renewal for another term for a higher premium or convert the policy to permanent coverage.
It is important to remember that your insurer could refuse to renew the coverage at the end of the policy term. If you are looking to renew or convert your term life insurance, make sure to familiarize yourself with the policy terms or talk to your insurance broker to ensure you know your policy’s deadlines.
Life insurance claims may be denied for many reasons, including misinformation on the application, missed premium payments and expired term life insurance. If you have been denied life insurance coverage, it is important to understand that you may have limited time to appeal the claim. Whatever the reasons, our team of experienced insurance denial lawyers will help you fight for your rights under the policy.
Have you been denied your life insurance claim? Contact one of our experienced insurance denial lawyers today. We work on a contingency fee arrangement so there is no up-front cost to you, and you only pay a legal fee if the insurer pays you.
Contact us at 604.581.7001 for a free initial consultation.