Five Reasons Why Your Life Insurance Claim May be Denied

On the surface, nothing seems simpler than processing a life insurance claim, and most life insurance claims are paid without a problem after the insured dies. Sometimes, however, life insurance claims are denied. Learning some common reasons why life insurance claims are denied can help you protect yourself and your family.

Reason #1: An Expired Policy

When term premiums aren't paid on time, a life insurance policy can lapse quickly. Even with a permanent policy, if nothing has been paid into the policy for some time, cash value may not be sufficient to cover operating costs. An expired policy will result in a denied claim when the insured person dies.

Reason #2: Fraud

Although most people are honest, life insurance companies have to investigate claims to protect themselves against the few who aren’t. Life insurance claims are rightfully denied when fraud is involved. Some people go to great lengths to cheat insurance companies through schemes including:

• Faking a death so that family members can collect money
• Making up a false identity that can later be "killed" to claim a death benefit
• Taking out a life insurance policy on a person without his or her permission.

Sadly, some people have even committed murder in an attempt fraudulently collect on a life insurance policy. Life insurance companies will investigate suspicious claims thoroughly if there is any question about how the insured passed away.

Reason #3: Insufficient Documentation

In order to process your claim, your insurance company will need a claim form as well as an official copy of the death certificate. The death certificate provided by your funeral director is not considered an official document, and without the legal death certificate, you may face a denied claim.

Reason #4: Material Misrepresentation

If a statement is made, or omitted from your life insurance application, that would have resulted in not being accepted for coverage, this is called material misrepresentation. Material misrepresentation, if discovered by an insurance company can lead to denied claims, even if the omission or false statement had nothing to do with the death of the insured person. Some common examples of material misrepresentation that could void your life insurance policy include lying about your:

• Age: Lying about your age to get better premium rates can result in a claim denial.

• Employment: Your insurer may not pay the claim when you die if you lied about what you do for a living, particularly if your job was dangerous to your life or health.

• Habits: Undisclosed poor lifestyle habits, such as smoking or heavy alcohol use, may result in a denied claim.

• Hobbies: If you had a dangerous hobby, such as skydiving or certain extreme sports, and didn't disclose this on your life insurance application, this is considered material misrepresentation.

• Medical history: Dishonesty about health conditions is one of the most common types of material misrepresentation.

• Other insurance: Buying many life insurance policies and not disclosing how much insurance you have can void your future claims.

Reason #5: Suicide

Tragic as it is, suicide voids many life insurance policies. If the insured person died two years or fewer after purchasing the life insurance policy, your claim may be delayed while the insurance company rules out suicide as a cause of death.