When and Why Life Insurance Doesn’t Payout
Written by Daniel Ray, Life Insurance Expert |
✅
Fact Checked by
Lisamarie Monaco |
Editorial Disclosure
Are you wondering when and why life insurance doesn’t payout? This article is perfect for you.
Life insurance is an important part of every financial plan. It helps protect your family in the event that you pass away, but what does life insurance not cover? While it can be a lifesaver for dependents, there are several reasons why life insurance may not pay out, including when you die to natural causes and suicide. Read on to learn more about these instances and how they affect your coverage.
Article Navigation
Reasons Why Life Insurance Claims are Denied
After a loved one passes away, the family should be able to obtain the loved one’s life insurance; however, sometimes insurance companies make this hard and will prevent the family from getting the claim that they deserve.
A life insurance policy is a contract between a policyholder and an insurance company that states that that the insurer promises to pay a beneficiary stated on the contract a certain amount of money when the insurance holder passes away.
An insurance holder pays a premium every month in order to ensure that the insurance company holds up its end of the contract; unfortunately, this is not always the case. It’s common for insurance companies to avoid paying beneficiaries the money that they may be entitled to.
Insurance companies may avoid paying out claims for a number of reasons. A life insurance lawyer pointed out that some of these reasons may be fought in court because they [insruance companies] are notorious for employing unfair tactics in order to hold onto the insurance.
It’s important to know some of the most common reasons that life insurance companies will not pay out the designated sum of money to beneficiaries.
Top Reasons Why Life Insurance May Not Pay Out
If you have just lost a loved one and are having a hard time getting the benefits you are supposed to, it may be worth your while to find out why. Here are some of the most common reasons that life insurance companies will avoid paying out beneficiaries:
1. In the Case of Suicide
This is perhaps the most common reason that insurance companies will not pay out beneficiaries. If an insurance policyholder takes his or her own life, it’s likely that the beneficiary will not receive the benefits that he or she has been left.
Most insurance companies will not pay out a beneficiary in the case of suicide, however, the rules are different state by state. Depending on the state, there may be a time in which a suicide clause can come into play; usually, this clause is one to two years. The suicide clause protects life insurance companies from people taking their own life so that their family can receive their death benefits.
2. If the Policy Holder was a Smoker
If the insurance holder was a smoker and the insurance company is made aware of this within two years of death, the insurance company will likely cancel any form of payment. Insurance companies will ask insurance holders if they are a smoker when they buy the policy, even if the person was 5 years ago and has since quit, the insurance company may still hold it against him or her when the beneficiaries attempt to get the benefits that he or she has been left.
3. Due to Certain Activities
Certain activities can impact whether or not an insurance company will pay the death benefits to the beneficiaries. These stipulations may be found in the insurance policy upon purchasing it; it’s important to read the fine print that details the sort of activities and lifestyles that will impact the insurance company’s payout.
4. Dangerous Activities
The point of life insurance is to take care of risk management, and to insurance companies, partaking in dangerous activities or lifestyles will make a life insurance policy unnecessary. If a person is a high-risk, perhaps a person that partakes in dangerous activities such as skydiving or driving a motorcycle, he or she will be expected to pay for that with the monthly premium.
If a person does not detail his or her risky lifestyle on the life insurance policy and ends up passing away while partaking in a dangerous activity, it’s likely that the insurance company will not pay out the beneficiary.
5. Illegal Activities
If a person dies while committing an illegal action, it’s likely that the insurance company will withhold money. An insurance company has the right to refuse to pay out a beneficiary, this is true even if the person was unintentionally doing something illegal.
6. Fraudulent Cases
No matter the cause of death, an insurance company is going to investigate the cause of death. If a beneficiary claims the cause of death is one thing when it is was, in fact, another, the insurance company has the right to claim insurance fraud and refuse to pay.
Similarly, if a policy claims that the insurance holder lived a risk-free lifestyle, and then he or she passes away parking in a risky activity, the insurance holder will likely not pay. This is true for certain health conditions and smokers as well. If the policy does not describe that the policyholder has a certain underlying health condition or that he or she was a smoker and then he or she passes away due to complications from this condition, the insurance company is likely to not pay.
7. If the Policy Holder was an Expatriate
Some life insurance policies state that they will not pay if the insurance holder moves out of the country. This clause may be written in the fine print and is worth looking for if the insurance holder plans on ever relocating out of the United States.
Make Sure Your Life Insurance Policy Will Actually Pay
In order to make sure that your life insurance policy will actually pay, keep these points in mind and try to avoid them the best that you can. It’s important to do proper research before purchasing a life insurance policy in order to best avoid any complications having to do with your insurance company neglecting to pay out your beneficiaries.
FAQs
Yes, if premiums are not paid, the policy can lapse, making it inactive, and there would be no payout upon the policyholder’s death.
For term life insurance, if the policyholder dies after the term has ended, the policy does not payout as coverage is no longer in effect.
Yes, certain types of death, such as those resulting from high-risk activities, illegal acts, or in some cases, suicide within the contestability period, may be excluded.
Most life insurance policies have a contestability period, typically the first one or two years, during which suicide may not be covered. After this period, suicide is often covered.
Misrepresentation or fraud involves providing false information or withholding critical information on the insurance application, such as health status, smoking habits, or risky hobbies.
If a beneficiary is legally implicated in the murder of the policyholder, they will not receive the payout.
If the policyholder dies while committing a crime, the death benefit may not be paid out due to illegal activity exclusions.
While you’re not typically required to report health changes after a policy is issued, failing to disclose significant health issues at the time of application can lead to claim denial.
Disputes can lead to delays in the payout. In some cases, the dispute may need to be resolved legally before the death benefit is distributed.
Insurers require a death certificate as proof of death. Without it, they may delay or deny the claim.
Some policies may have geographical exclusions where deaths in certain countries or regions may not be covered.
Related Articles
Conclusion
If you’re a parent in this situation, it can be very frustrating to try and work with the insurance company. It might feel like they are trying to prevent your family from getting the life insurance that is rightfully yours. Well, we have some good news for you! This article has outlined when an insurer will deny or delay payment on a claim so that families like yours know what their rights are. And if all of these things sound overwhelming and complicated? Let us do it for you! We understand how stressful this type of process can be and our team would love to help make sure everything goes smoothly by providing an instant quote on your policy today.
