It didn’t seem fair…
Ted Croft, a father of four, tragically lost his wife, Chelsea, to a form of cancer so rare the cancer center had never treated it.
But after paying into Chelsea’s life insurance policy for years, they accidentally missed a payment when they were busy moving.
By the time they realized Chelsea had cancer, though, her policy had lapsed, and upon her death, Ted received no payout. (Read Full Story…)
Is this common?
We know life insurance companies pay their claims, or they wouldn’t be in business.
So, what was different this time?
… and what other “gotcha’s” do the insurance companies use that you need to be aware of?
In this post, I’ll explain the instances when life insurance companies justifiably don’t pay (so you can avoid them) as well as some other scenarios you probably haven’t even considered.
- 7 Life Insurance Payouts Gone Wrong
- Do Life Insurance Companies Really Pay Their Claims?
- How to a Declined Life Insurance Payout During 2 Year Contestability Period
Circumstances When Life Insurance Companies Don’t Pay Benefits
Always read the fine print on your life insurance policy and check for any exclusions. It is also critical you work with an experienced agent who can recommend a policy to you from a company with a high claims paying history.
Here are some things to watch out for:
#1 – Health Related Deaths or Suicide (in Accidental Policies)
Be careful of accidental life insurance policies. They frequently reject payment because the owner/insured died of causes that aren’t covered by the policy.
Accidental policies don’t cover:
- Health related deaths
- Many don’t cover even accidental death if the death occurred while driving intoxicated or while committing a crime
It is important to note, however, that almost all policies include (not just accidental) a 2 or 3 year suicide clause, disallowing the company to pay out if death is resulted from suicide in the first 2-3 years of the policy.
Be sure to buy a policy that covers natural death, which pays out for health related deaths, accidental death, any type of death really, and (even) suicide, typically after the first 2 years.
You can get an idea of how much this will cost you by visiting our sample rates by age page, which shows free sample quotes with no personal information required.
#2 – Any Death During the First 2 Year “Contestability Period”
If you die within the first 2 years after a life insurance company issues you a policy, the company has the right to open up an investigation which may include requests for:
- an autopsy report
- order medical records
- statement from the agent
- interviews from deposed friends & family
To catch fraud and suicide… and NOT pay out for them.
Did You Know?
When Heath Ledger died, ING/Reliastar investigated his death for 2 months. Click here to see what happened.
If the company finds inconsistencies from your statements on your original application compared to the real life case, they could potentially “contest” (not pay) the beneficiary.
If you said you never smoked on your application and died 1 year later from lung cancer, you might have been able to sneak it by the company when you purchased your policy, but they would almost certainly discover it in their investigation.
That would give them the right to deny a payout!
Note: The lie must be a “material misrepresentation”. If you accidentally wrote your birthday was July 7th instead of July 17th, that does NOT give a company grounds to deny a claim.
Furthermore, most companies pay out immediately after the initial 2 year period. Even if fraud was committed, they aren’t allowed to investigate and typically will pay out as soon as they receive the claim paperwork. They even pay out for suicide after the suicide clause.
CAUTION: Many agents accidentally (and unknowingly) add an additional 2 year contestability period to their clients’ policies when buying additional coverage or when doing health reclassifications for premium reduction. Watch out for this! Our agents are highly trained in this regard and are standing by if you call us at 877-443-9467 or get a quote here.
#3 – Non Payment of Premium
I’ve heard dozens of stories about people who paid into a policy for years, and then changed banks or moved and accidentally let their policy lapse.
The sad truth?
If your policy has not been paid and made current and death occurs, no coverage is available.
I must say this is one I have a problem with…
Say a man takes out a policy at age 45 and owns it for 30 years, paying it every month for all that time. And then at age 75 he develops dementia and somehow lets his policy go without payment.
I personally feel like the insurance company should have to pay. (And there are many court cases where they have had to pay)
But you know what?
A good agent will add a “secondary addressee” to the policy.
That’s a friend or family member of the policy owner who gets notified if the payment hasn’t been made and the policy is going to lapse.
A secondary addressee can save your policy. Our agents are highly trained in this respect, ensuring your family gets the valuable coverage they need. Click HERE to Get an Instant Quote Now!
#4 – Homicide (If the Beneficiary is a Suspect or the Murderer)
If the insured person was murdered, the life insurance claims representative always makes a call to the detective on the case to be sure the beneficiary is not a suspect.
If he/she is a suspect, they hold payment until charges are dropped or the beneficiary is acquitted of the crime.
- Man Kills Fiancé and Collects Her Life Insurance
- 7 Life Insurance Payouts Gone Wrong
- “Suicide by Cop” Case = Denied Payment
Lesson: Don’t plan on taking life insurance out on someone and having them knocked off. Not only is it a horrible crime against humanity, but your plan to get paid life insurance almost certainly won’t work.
#5 – What if the Insured Dies While Committing a Crime?
Let’s say the insured on a policy robs a bank, and in the process, is shot and killed.
What if a terrorist takes out a policy and then dies in an act of terror or suicide bombing? Are the insurance companies on the hook for the life insurance benefits?
These are tough questions, so let’s start with what we know.
We know that during the first 2 years after a policy has been issued, most companies won’t pay out for suicide. After 2 years, they do.
However, I’ve read many companies’ certificates/contracts and have never seen a statement excluding coverage for death in the midst of committing a crime, or while intoxicated, or for any other reason. So I made some calls around to my insurance companies’ death claim departments, and asked my “what if” questions.
One representative explained that the only time they ever hold payment is if the death occurs within the two year contestable period, or if the cause of death listed on the death certificate is “homicide”.
… ok, we already covered those.
So where does that leave us?
I was also told if the policy itself does not exclude it, it’s covered.
I know a agent who worked in claims for Prudential for 4 years, and said they rarely ever contested claims, even for suicide, because the insurance company has to be 100% right to contest a claim. So if you have insurance, read your policy. If it’s not excluded there, it’s covered.
So, following the explanation above, yes, someone robbing a bank who gets shot might get their insurance paid out, but maybe not if they own an accidental policy, or their beneficiary was an accessory to the crime, or the one who did the shooting. LOL.
If death is by suicide, it will not be covered for the first 2 years if the insurance company can prove it.
And even if death occurs during an outrageously heinous act, as in an act of terrorism, I would be inclined to think many insurance companies would pay the claim.
After all, the proceeds are for the benefit of the beneficiary, not the deceased, and in any of the cases above, you could make the argument that a spouse just left widowed or a child just left fatherless or motherless should not be punished for the sins of their spouse/father.
I recently ran a disability insurance illustration for a doctor, and noticed many exclusions the policy would not cover.
These excluded payment of disability insurance benefits if you were injured or to become sick as the result of committing a crime or attempting suicide, for example. (For a full list, see below)
This got me thinking about whether life insurance companies pay out in some of these circumstances, which was really my inspiration for this article.
Below, you’ll find Lloyds of London’s exclusions to their disability coverage:
This certificate does not cover any loss due to Sickness or Injury caused by, contributed by or related to the
following and/or treatments and/or complications thereof: Suicide or intentional self inflicted injury or
poisoning; while insured is committing or attempting to commit a crime; taking illegal or non-prescribed drugs,
or addiction or misuse of prescription drugs; alcohol abuse or addiction, or being under the influence of
alcohol, as defined by the vehicle code of the state or province in which the accident has occurred; mental or
nervous disorders; pre-existing conditions which are not disclosed on the application; subjective pain or other
symptoms unless supported by objective medical findings; pregnancy and pregnancy-related conditions
including but not limited to fertility, pre-natal care, childbirth, miscarriage, abortion or postpartum conditions;
nuclear, biological or chemical exposure as a result of war, declared or undeclared or terrorism; active war,
declared or undeclared. (Please note that terrorism or acts of terrorism is covered under this certificate.)
Also be sure to read our article titled Do Life Insurance Companies Really Pay Their Claims?
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