What to Do if a Loved One Passed Away in an Uninsurable Manner

If you’re contemplating purchasing life insurance, it’s important to understand that in most cases, insurance companies pay out claims when the insured individual passes away.

However, it’s natural to have curiosity about the small percentage of claims that don’t go smoothly. After all, the primary purpose of having life insurance is to ensure peace of mind, knowing that your family would receive a lump sum if you were to pass away while the policy is in effect.

Here’s what you should know about unpaid claims and how you can prevent issues with your coverage.

Is Life Insurance Always Guaranteed to Pay Out?

While life insurance typically pays out, there are instances where it doesn’t. The payout rates for whole life insurance, which provides coverage for a lifetime rather than a specific period, can be as high as 99.9%. However, this only represents a portion of the overall industry statistics. Different insurers have varying claim rates, but a majority of them exceed 95%. When obtaining life insurance quotes, you can typically compare the claims rates of each company.

While claims statistics can be informative, there is often minimal difference among insurers. Additionally, it’s important to note that you may not be comparing apples to apples, as different providers have varying criteria for denying claims. It’s easy to get caught up in claims statistics, and insurers naturally highlight high payment percentages whenever possible. However, it’s crucial to assess whether the coverage features align with your needs and if the premiums are reasonable.

Why Might Life Insurance Claims Be Denied?

Insurance companies usually outline the reasons for claim denials in their policy terms. Therefore, before committing to a particular coverage, it’s essential to carefully read the fine print.

Here are some common reasons why claims may be denied:

1. Dishonesty during the application process:
   Failing to provide accurate information on the application form, providing misleading details, or withholding necessary information can all lead to partial or complete claim denial.When applying for life insurance, you’ll be asked questions about your health, lifestyle, medical history, smoking habits, alcohol consumption, and physical characteristics like height and weight. It’s crucial to read the application questions and definitions attentively. For example, even if you’ve used tobacco or nicotine replacement products like e-cigarettes only occasionally within the past 12 months, you would still be considered a smoker.

   It’s important to be open, honest, and precise in your responses to ensure that nothing later raises doubts for the insurer regarding a claim. If you’re uncertain about an answer, it’s best to express your uncertainty so that the insurer can investigate rather than making assumptions.

   Once your insurance policy is in effect, you generally don’t need to notify your insurer of changes such as quitting smoking or experiencing health problems. Your premiums are determined by the circumstances under which you purchased the policy.

2. Exclusions in the policy:
   If your insurance policy contains specific exclusions, filing a claim for something that falls outside the coverage will not result in a payout.For example, if your policy excludes death resulting from a particular illness or an accident while engaging in high-risk activities, no payment will be made if such circumstances cause the death.

   Insurers assess your health information, any existing illnesses, and other factors like risky work or hobbies when evaluating your application. If any of these factors increase the likelihood of a claim, they may be incorporated as exclusions in your policy.

   Generally, insurers will not pay out if the policyholder dies due to:

   • Substance abuse or alcohol misuse
   • Terrorism or war
   • Recklessness or extreme negligence
   • Suicide within the first year

   Exclusions can vary significantly depending on the insurer and the individual, so it’s crucial to carefully review the policy’s fine print before making a purchase.

3. Missed premium payments:
   In addition to providing accurate information, it’s your responsibility to continue paying the premiums on time. If you fail to make the necessary payments within the specified timeframe, such as within 60 days, the insurer may cancel your coverage and deny any claims.If your insurance includes a premium waiver and you’re unable to pay premiums for a period due to an accident or illness, this should not affect your coverage or claim. However, you must notify your insurer and adhere to the rules of the waiver benefit.
4. Death during the waiting period:
   Some life insurance policies, particularly those for individuals over 50, have a waiting period after the policy’s start date. If you pass away during this period, the insurer may not pay out the claim. The waiting period can range from 12 to 24 months before the coverage becomes fully effective.Typically, life insurance policies do not provide payouts during this waiting period. However, accidental death may be an exception, and any premiums already paid should be refunded.

   After the waiting period, most insurers will pay out if a person commits suicide. However, this can vary depending on the circumstances surrounding the death and the specific insurance provider.

   If your life insurance policy offers an early payment option upon diagnosis of a terminal disease, you may not be able to file a claim during the waiting period. There is typically also a maximum life expectancy limit. If you’re projected to live beyond the insurer’s total life expectancy, usually 12 months, there will be no early payout.

5. Outliving a term policy:
   If you outlive your term life insurance coverage, there will be no payout. Term life insurance covers you for a predetermined period, such as 20 years, as agreed upon during the application process.Once that predetermined time has elapsed, your policy will expire, and you will not receive any compensation. Consequently, any subsequent claims will be denied because the policy is no longer in effect.

If an insurer denies a claim or offers a lower compensation amount, you have options if you believe the decision was unfair or incorrect. If you’re dissatisfied with how an insurer handles a claim, you can take the following steps:

• Speak with your insurer:
  Sometimes, providing additional information can help explain or resolve the issue.
• File a formal complaint with the insurance company:
  If the matter remains unresolved and you’re dissatisfied with the outcome, submit a formal complaint to the insurance company. They must respond within eight weeks and provide instructions on how to proceed.
• File a complaint with the Financial Ombudsman Services (FOS):
  If you’re still unsatisfied with the insurer’s response to your formal complaint or if you haven’t received any response within eight weeks, you can file a complaint with the Financial Ombudsman Services. They will further investigate your case.

Don’t let a small number of denied claims discourage you from obtaining the necessary protection for your family. Keep in mind that insurers have an incentive to maintain high payment rates.