Life insurance claim denied!
Now that’s a scary statement to start off any life insurance article.
I would however like to emphasize that for the vast majority of life insurance claims, a company will honor the death benefits without issue (if you are looking for more information about my picks for the best life insurance companies that pay out click here!).
Unfortunately there is flip side to this coin. There are occasions when a life insurance claim is denied by the insurer.
Although we greatly sympathize with those embroiled in a legal entanglement with their insurer, we’re going to review the reasons why a company might deny a claim.
To start, be sure to grab a quote from a company you can trust below, or if you're already dealing with a company withholding money from you, click for help with a denied claim.
In a perfect world I want everyone, whether you currently own a policy or are thinking about buying one, to understand their legal obligations and rights. This will prevent your beneficiaries from getting caught in a quagmire when a claim is submitted.
Don’t lose heart if you’ve hear the words “life insurance claim denied!”. Most companies have an appeal process. There are also fantastic life insurance lawyers out there. I strongly recommend that you use one to represent you in the unlikely event that you find yourself in this situation.
It’s worth the fight.
This advice is true no matter where you live. This quote comes from as far away as Australia my friends:
All insurance policies are contracts and, in most cases, the contract is written by the insurer. These documents are written by lawyers and it’s not unusual to see the use of complex terminology and complex document structures. What You Need to Know About Life Insurance Rights and Responsibilities, The Australian
So first and foremost, be aware that a life insurance policy is a legally binding contract.
This means any breach of contractual obligations may cause your claim to be denied by the insurer.
Most life insurance companies have been in this business for well over a century and they’ve seen it all.
Life insurance scams abound and companies don’t take any form of misrepresentation lightly.
Always be COMPLETELY TRUTHFUL when you apply for a policy.
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Don't Be Pinocchio! Or Your Beneficiaries Will Hear "Life Insurance Claim Denied"
If you’ve been reading my blog, you will see this point come up time and time again! I advise all of my clients to be prepared for the application process. Not sure about a question? Take time to clarify the details.
Guessing is a dangerous game. If you misstate something, provide inaccurate or incomplete information this leaves room for denial of your claim. You should also be as truthful as possible. This is not the time for creativity – honesty is always the best policy.
So let’s take some time to analyze the main reasons why policies are denied.
...& 7 Real People Who Didn't Get Their Payout
Life Insurance Claim Denied...Let's Find Out Why
Material Misrepresentations & The Contestability Period
So you remember that advice I gave ‘ya: No lying, exaggerating or guessing?
Well you’re gonna find out what happens if you don’t heed my recommendations right now ladies and gentlemen!
All life insurance policies contain a clause which states that if the insured dies within the first two years, the company has the legal right to legitimately challenge the claim.
This allows the insurance company to confirm background information contained in the policy and potentially dispute the death benefits. Hey they didn’t expect ‘ya to die after all!
Tell the Truth - the Whole Truth & Nothing but the Truth!
Insurance applications ask various questions about age, weight, income, health, hobbies, criminal history etc.
If your life insurance company contests the policy and finds information that was either omitted or contradicts the statements you provided, there is gonna be an issue.
Please note, only material misrepresentations (those that affect risk) result in policy cancellation. That being said, in some rare instances insurance companies use contestability as an opportunity to deny a valid claim – even if the misrepresentation or nondisclosure isn’t material.
Don’t breathe a sigh of relief if your application was approved. Misrepresentations can come back to bite you down the line if they are relevant to a claim. Lying on Insurance Forms Can Come Back to Haunt You, CNBC.com
#1: Incomplete Application Used as Reason to Deny a Legitimate Claim
After Ian Weissberger’s death in 2005, American General cancelled his life insurance policy and refused to pay his widow the $250,000 benefit!
The premiums were paid up and no foul play suspected. So why was his sole beneficiary, Sheila Weissberger, denied her claim? Was it Lou Gehrig’s disease? Nope, he wasn’t diagnosed until months after her took out the policy! So what’s the deal?
American General said that Ian’s application for coverage was incomplete. The company stated that Weissberger failed to disclose conditions, including bipolar disorder and pulmonary disease in the application process, which nullified his wife’s claim.
The most interesting part is, Ian’s doctors deny he had those conditions!
To stop abuses by life insurers, most states have banned limitless rescissions, but in California and elsewhere, they are permitted during the two year contestability period.
#2: Murder Victim's Family Denied Claim because of a Preexisting Condition!
A lawsuit was filed against Settlers Life Insurance, by the widow of Curtis McCraw, who was gunned down by unknown assailants in Knoxville, Tennessee.
Stephanie McCraw, was denied the death benefit because the company claims McCraw had Hepatitis C unbeknownst to them, a pre-existing condition that was unrelated to the cause of death.
The company President Michael Lowe states that Settlers shouldn’t have to pay the death benefits if they’re able to prove McCraw lied about his condition.
“The law in Tennessee is clear that the cause of death is not relevant,” Lowe said. “What is relevant is whether the insured truthfully informed the company of his health at time of his death. If an applicant lied, the company has a right to deny the claim.”
Policy Exclusions Such as Suicide
Every life insurance contract has a number of exclusions that define situations where coverage will be denied, such as suicide for example.
These exclusions are worded very carefully by life insurance companies.
It’s important for you to understand your exclusions before you sign on the dotted line as these scenarios may be used to deny a claim under the right circumstances
Note: Some exclusions are ambiguous. Life insurance companies use them to routinely deny claims.
#4: A Suicide That Resulted in Denial of Death Benefits!
Life insurance companies typically include a suicide clause in their policies. The standard wording usually gives them the right to deny a life insurance claim if the insured commits suicide within two years of taking out the policy.
Should an insured person replace an existing life insurance policy with a new one, the clock for the suicide clause is set back to zero. Which means the two year period starts all over again!
An Iowa man replaced four small policies with one policy that had a death benefit of approximately $60,000. Both the old policies and the new one were issued by Bankers Life Co.
The man committed suicide within two years of the issuance of the newly combined policy. The insurer denied the claim under the suicide clause. A lawsuit followed and four years later, on the eve of trial, the widow settled for $23,000.
Unfortunately she also had to shoulder substantial legal costs. Ugh.
Denied Payout for “Apparent Suicide”?
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#5: Life Insurance Claim Denied: Yet Another Policy Exclusion!
When Jenny and John Crowley found out they were having a baby, they did the responsible thing and bought life insurance. Thankfully, they both passed the insurance company’s physicals. Jenny obtained $500,000 in coverage and John $1 million.
They were set and would be secure for decades to come! …or at least that’s what they thought…
Sadly, one year later, Jenny died of an aggressive form of breast cancer. When John put in the claim he was rejected!
The company, which has since settled with Crowley, acknowledges that this case prompted them to change their own policy several months ago. They now support Crowley in his fight to push through legislation, dubbed “Jenny’s Law.”
Advocates for Jenny’s Law, named for Jenny Crowley of Ashland and designed to more fully protect families that take out life insurance policies, were hosted by Governor Deval Patrick on Monday, December 8 in a ceremonial signing of the bill. The legislation, introduced by Senator Karen Spilka (D-Ashland) in January 2007, was signed into law by the Governor in November. HollistonReporter.com
“Under precedent at the time, it did require that a person be in good health when the policy was issued, even if they didn’t know about it,” said general counsel Terence O’Malley. “We reviewed all that and agreed that a different standard should apply.”
In most states, “good health” is clearly defined by insurance law. This wasn’t the case in Massachusetts. Courts had been relying on precedent set by cases dating back to 1920. This put the burden on policyholders to demonstrate that they were in good health when their policy was issued.
In Jenny Crowley’s case, the company cited the “good health” provision to deny the claim.
Lapsed Policy - Nonpayment of Premiums
Your claim will be denied if you allow your policy to lapse by neglecting or failing to pay premiums.
A life insurance policy is only active for as long as premiums are up to date. Failure to make payments may cause a policy to lapse or be terminated by the insurer.
Denied claims due to lapse are very common and life insurance companies may even use nonpayment of premiums as an excuse to deny a claim even when it should be paid.
NOTE: As a beneficiary, you have the right to know whether the life insurance company sent notices to the correct address. The insured has the right to be clearly warned of impending lapse.
#6: Denied Claim Due to Lapse
Ted Croft, a father of four with two sets of twins, tragically lost his wife after she was diagnosed with a type of brain tumor so rare the Cancer Center Agency had never before treated it.
This is a tragedy, but the story gets even worse! Croft found out that his life insurance company won’t be paying him a penny.
Life insurance claim denied!
35-year-old Chelsea Steyns should have been insured when she passed away. Sadly, this wasn’t the case.
The couple had moved house and were dealing with the effects of an at-risk pregnancy, so they failed to note her life insurance premiums went unpaid for one month. The withdrawal usually came out of her account, but something ‘glitched’ in the system and it was missed.
Five months later, Chelsea was diagnosed with a brain tumor. Following this devastating news, she called her life insurance company and was informed the policy was null and void! The company stated that a letter was sent to notify them of the lapse in coverage, but the couple never received it.
Life Insurance Tip: Always name a secondary addressee on your account. That way if you move, change banks or residences and forget about your life insurance premium the carrier will send notifications to the person on record. Most carriers have a grace period of 30 – 60 days.
The most common reason a life insurance claim is denied is because of alleged material misstatement or false information on the application.
There is a caveat. The information has to be so critical that had it been imparted to the life insurance company they would have refused to issue your policy.
Any statement or omission used to disguise circumstances that would have otherwise led to such rejection may result in your life insurance claim being denied.
Note: This can occur even after the two year contestability period.
#7: A Widow Paid His Premiums for 18 Years, Only to Have his Claim Denied When He Died
Alexander Shetsen worked hard to provide for his family. He took a job as a property manager with the Newark Housing Authority in November 1989, and stayed there for more than five years.
As part of his benefits, he held a life insurance policy that would pay $21,000 upon his death as long as he paid the premiums, which he maintained diligently for 18 years.
…But when he died on Aug. 1, 2013, at age 85, the life insurance company refused to pay his beneficiary!
Cigna said the terms of the new policy didn’t cover Shetsen because he didn’t have enough years of service at the housing authority to qualify. They made this assertion despite the fact that Shetsen paid more than $4,000 in premiums over 18 years.
Thankfully a few days later, “Somebody from Cigna called and said they are very sorry, his policy was correct and they are sending her a check for $21,000 today,”
All insurance companies have procedures to appeal denied claims, so if you’re ever hear the words: “Life Insurance Claim Denied” be sure to take advantage of this process.
“If someone has been denied a claim, please remember this is not a final decision,” said Sean Keating, a certified financial planner with Patriot Financial Advisors in Eatontown. “They should gather all the information they can about the policy and why it was denied.”
#6: Life Insurance Claim Denied Based on Height Discrepancy!
A Lubbock woman is suing a Pennsylvania insurer, alleging the company improperly denied a $200,000 death benefit because they claim her ex-husband listed the wrong height on his insurance application!
Yep, the insurer asserted that Henry Sanders was 5’8″ – 5’9″ inches tall instead of 5’11”, which he claimed on his application.
The plaintiffs provided the company with an autopsy report that showed Henry Sanders was actually 5 ’10½” inches tall. Only a half-inch shorter than the height he reported on the life insurance application.
A doctor also submitted a statement confirming body height varies with the passage of time and can differ by as much as a half-inch over the course of a single day.
The suit alleges that the Life Insurance Co. of North America refused to pay the claim, based on a “hyper-technical” reason.
Sure sounds like a STRETCH to us.
Life Insurance TIP: It’s not uncommon for life insurance companies to use material misstatements or omissions to deny a life insurance claim. Always be honest. It’s also a good idea to get your agent to give you a copy of any statements you made during the application interview. Some agents gloss over information or cut corners. If your life insurance claim is denied, your beneficiary should challenge the company and this information will come in handy.
What Are Your Rights & Obligations? Huntley Wealth Can Help!
A life insurance policy is a contract. So you if you hear the words “Life insurance claim denied” it’s time to look at your rights.
Insurers are legally obligated to provide a beneficiary with the following information:
* The insurer must provide a legitimate reason and notice of why the claim is being denied. Otherwise they may be violating the law.
* Each submitted claim must be reviewed in good faith and cannot be denied for an arbitrary reason.
…and as I mentioned above there is an appeal process, so it’s not over ’til it’s over. Many people have successfully appealed denied claims so please don’t give up.
Find a great life insurance lawyer and saddle up for a fight.
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This is yet another great reason to make sure you consult a SEASONED independent agency, such as Huntley Wealth. Our agents will go through the application process with you – to make sure you are crossing your i’s and dotting your t’s.
You can feel secure in the knowledge that we will never rush you through the process or gloss over important details.
Call us today at 877 – 443 – 9467 if you think you need life insurance because we can help!