Instances When Life Insurance Payouts Are Denied

Life insurance pays benefits to the beneficiaries of the policyholder. It may include money to pay burial costs, the future education of the policyholder’s children, and living expenses. Certain policies, such as whole life and universal life, have growing cash value and pay benefits to the policyholder. However, there are instances when the policy doesn’t pay after the individual’s death.

Reasons Behind the Denial of Life Insurance

The life insurance agency pays beneficiaries upon the death of the policyholder if the premiums are regularly paid. If not, there can be a problem with payouts to beneficiaries. Other reasons for denial or delay  in payment include:

  • Providing wrong information in the application

    False information on an application is grounds for a claim denial. These are further penalties if the applicant is charged with fraud.

  • Pursuing risky hobbies

    If the policyholder dies from a high-risk activity that could have been prevented, the policy probably will not pay beneficiaries. This is particularly true if the policy specifically lists the risky activity as an “exclusion.”

  • Beneficiary murdering the insured

    The policy does not allow payout if the beneficiary murders the policyholder or has links with the accused.

  • Committing Suicide

    Although suicide is usually covered by a life insurance plan, it must not take place within two years of the application’s approval.

  • War or terrorism

    Acts of war or terrorism may be listed as exclusions on a life insurance policy. This clause, however, is more common with other types of insurance.

What Happens to a Life Insurance Policy With No Beneficiary?

  • If you don’t list any primary or contingent beneficiaries

    In such a scenario, the benefits are transferred to the policyholder’s estate instead, which slows down payouts to the family. The court eventually decides who gets benefits. Those who are not listed on the policy and claim benefits may need to pay estate taxes.

  • If your beneficiaries predecease you

    If you outlive your beneficiaries, it’s the same result as if they were never listed on the policy, i.e., no payouts occur. That’s why it’s important to update the beneficiary list on your policy after a beneficiary dies.

The Inclusions Of A Life Insurance Coverage

 Life insurance  pays out benefits for the following causes of death:

  • Natural causes

    Any natural cause of death, such as heart attack, stroke, cancer, and infection, qualifies for a payout to beneficiaries.

  • Accidental death

    Deaths resulting from a car crash, plane crash, falling backward, drowning, and poisoning is covered by life insurance.

  • Pandemic-related illness

    Since COVID-19 is categorized as a natural cause of death, illnesses related to it, leading to death, qualify for payouts.

  • Suicide after two years

    After two years, a life insurance policy typically covers suicide except in certain cases that conflict with the policy’s suicide clause.

  • Murder

    Beneficiaries will be paid as long as they were not involved with the murder.

The key to making sure your life insurance policy works for you and your loved ones starts with completing the application accurately. Contact our experts at Burton A. Harris Insurance Agency for more information about how life insurance can secure your family’s future.