When A Life Insurance Policy May Not Payout

When you are paying for your life insurance company (or your spouse is), it doesn’t seem fair that there are some instances in which they may not pay out a claim. There are five common instances in which a life insurance policy will not pay out a death benefit:

  1. Suicide or Heath-Related Deaths
  2. Homicide
  3. Deaths that occur within the first 2 years of the policy
  4. Policy has exclusions on specific causes of death
  5. Missed or non-payment of premiums

Other Reasons For Denial or Non Payment

There may be other reasons that an insurance policy is denied or does not pay a death benefit such as a dispute of the cause of death or misrepresentation on the life insurance application (e.g., listing yourself as a non-smoker when you do smoke occasionally).

It is important to read the fine print of any policy you select and go over any concerns you may have about non-payment of claims with one of our experienced independent insurance agents. We will find you a policy with an insurance company that will best suit your needs and specific concerns.

Now, the five common instances listed above are legitimate reasons, that are included in many policies, that may lead to a non-payment of a death benefit.

1. Suicide or Heath-Related Deaths

These exclusions are commonly found in accident life insurance policies but may be excluded in other types of life insurance policies. If this exclusion is a part of your policy, then it will not pay a death benefit when the policyholder commits suicide or dies as a result of health-related causes (such as cancer). Some life insurance policies will only exclude death by suicide within the first 2 or 3 years of the policy and only if the cause of death is definitive. In addition, if accidental death occurs while the policyholder commits a crime or is driving while intoxicated, then the death may also be excluded from a payout.

When shopping for a policy be sure to check the exclusions, and go with a policy that covers natural death, which pays out for health-related deaths, accidental deaths, and, really, just about any type of death, including suicide, after the first 2 years of the policy.

2. Homicide

If the policyholder’s death is labeled as a homicide, then the insurance agency can investigate the death to ensure that the beneficiary is not a suspect. While the beneficiary is considered a suspect or person of interest, the insurance company will not payout the death benefit. Only when the beneficiary is cleared of suspicion, has had the charges against them dropped, or has been acquitted of the murder will they be eligible to receive the death benefit.

3. Deaths that occur within the first 2 years of the policy

Deaths that occur within the first 2 years of the policy are eligible to be investigated by the insurance company to determine whether the policyholder’s death is truly eligible for a payout. The insurance company may request

  • The autopsy report
  • The policyholder’s medical records
  • A statement from the issuing agent
  • Interviews with family or friends of the deceased policyholder

The insurance company is verifying that there were not any misrepresentations of the policyholder on their application and verifying that the cause of death was not one of the exclusions. If the investigation finds no faults, then the insurance company may payout the death benefit. After the first 2 years of the policy, the insurance company is not allowed to open an investigation and the payout is typically quicker.

4. Policy has exclusions on specific causes of death

Some policies may include more specific causes of death in the policy aside from suicide or homicide. Check your policy before signing on to ensure that you fully understand in which circumstances your death may not be eligible for a payout. Some “what ifs” we are commonly asked are:

  • The policyholder dies in the course of committing a crime
  • The policyholder was drinking and driving and dies in a car accident
  • The policyholder mishandles a firearm and accidentally shoots themselves
  • The policyholder was taking part in a high-risk sport (e.g., skydiving or bungee jumping)
  • The policyholder dies in the line of duty (e.g., police officer, firefighter, corrections, etc.)

Typically, if your policy does not exclude the “what if” death then it is likely to payout, especially if the death occurs after the 2-year probationary period of the policy.

5. Missed or non-payment of premiums

An insurance policy is a contract between you and the insurance company that requires you to make the necessary monthly premiums to keep the contract valid. The policy will typically include a paragraph or two that if a payment is missed, then the policy will be canceled and no longer considered valid. If your policy is canceled or invalid, it cannot pay a death benefit upon your passing. However, there may be exceptions under mitigating circumstances where an insurance company may payout, even with a missed payment. For example, if you purchased a 30-year term life insurance policy at the age of 45 but around age 65 you developed dementia and as a result missed a payment, then your family could fight the non-payment of the death benefit.

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