Insurance companies are for-profit institutions, and they will find any possible reason to issue a denial whenever they can. If your claim for life insurance was denied, here are a few of the most common reasons.
1. The policy lapsed due to non-payment.
Unfortunately, non-payment is one of the most common sources of claim denials and — unless there is proof that the individual actually did make a payment on the policy within the time allowed to do so — there is little opportunity to appeal. One issue that often arises with group life insurance — that is, a life insurance policy provided by an individual’s employer — is when the employer pays for the premium but fails to tell a policyholder when he or she goes on disability that he or she will need to self-pay the premium during the course of that disability. This misunderstanding can lead to a claim denial if the policyholder is unaware that he or she needs to make the payment and can cause a claim denial if the policyholder dies while on disability.
Policyholders have the right to know when their premium is due, what happens if the premium is not paid, and to ensure that the premium-due notice is sent to the proper address.
2. The cause of death is not covered by the policy.
Certain causes of death are not covered by life insurance policies, including:
- Suicide, particularly within the two-year contestability period. It should be noted that doctor-assisted euthanasia is not considered suicide for the purpose of life insurance provisions. While Texas does not legally allow doctor-assisted euthanasia, doctors can — upon the consent of the dying patient and/or an individual named by the patient to make decisions to withdraw life support — stop providing mechanical life support such as a ventilator or a feeding tube so that the individual can die naturally.
- Homicide. If a policyholder dies as a result of homicide, the life insurance provider may withhold payment on the policy until it is determined that the named beneficiary on the policy was not involved in causing the death.
- Drug or alcohol abuse that either led to health conditions that caused the death or led to an accident that resulted in the policyholder’s death while under the influence of drugs or alcohol.
- Death due to the policyholder’s illegal activities, such as drinking and driving or failing to wear a seatbelt.
- The death of a civilian due to an act of war. Note: Death of military service members due to an act of war is generally covered.
3. The policyholder died during the contestability period.
When an individual purchases a life insurance policy, there is a period of time — two years in Texas and most other states — during which the insurance provider can review the information you submitted on your policy application. If a person dies during this time, the insurance company can conduct an investigation to ensure that the policyholder provided accurate information, as well as to look into the cause of the policyholder’s death. During the contestability period, a claim can be denied due to misinformation contained in the application, even if that information did not pertain to the deceased’s cause of death.
4. The policyholder lied on the application.
Most life insurance policies include language indicating that a deliberate misrepresentation by the insured will result in denial of the claim. One common example of this would be a policyholder who lies about his or her tobacco use and then later dies as a result of smoking-induced lung cancer. The insurance company in this circumstance may deny the claim because the policyholder was not truthful about his or her smoking habit on the application. Had he or she been truthful, the policy may not have been provided or may have required a higher premium.
5. There is no beneficiary on file or other issues with beneficiaries
If a policyholder declines to name a beneficiary of his or her policy, the life insurance company must either pay the policy in accordance with state laws or in accordance with the terms of the policy. This may cause a person who believed they were the beneficiary to be unable to receive a payout on the claim. Other beneficiary issues can also cause the claim to be denied or delayed, including:
- A minor child was named as the beneficiary.
- A spouse was named as the beneficiary and the couple later divorced.
- The policyholder was not specific in naming a beneficiary but instead named his or her “children” or “relatives” as beneficiaries. The lack of specificity in naming a beneficiary can result in the claim being denied or a delay in order to determine which children or which relatives should receive the payout.
If Your Claim for Life Insurance Was Denied…
If your claim for life insurance was denied, there is an appeals process that may provide you with some relief. However, there are a number of rules and time limits involved in taking advantage of this process. It is important that you contact an experienced ERISA attorney as soon as possible for a full explanation of the legal options that are available to you.
Following graduation from Loyola Law School in New Orleans in 1990, Price McNamara served as a Federal Judicial Law Clerk to the Honorable John M Shaw, Chief Judge, United States District Court Western District of Louisiana.
Mr. McNamara founded the Law Offices of J. Price McNamara, and began putting his past experience to work for the injured and disabled clients he now represents against the insurance companies in personal injury and long term disability and other insurance disputes in both federal and state courts