Most of us will pay thousands or even tens of thousands in life insurance. All that money spent comes with an implicit confidence that when we pass, our partner or other loved ones will see a payout for all those years that we have loyally paid premiums.
Unfortunately, that does not always happen. Life insurance companies are notoriously combative and are often caught in bad faith by both policyholders and their beneficiaries. Here are five common reasons why life insurance companies deny claims, and some tips to prevent these problems and what a beneficiary should do if his or her claim is rejected.
1. Traveling abroad and "dangerous" hobbies
Many seniors decide to use their retirement savings and time to travel around the world and indulge in their favorite activities. If you are one of these, please bear in mind: the questionnaire on your life insurance application probably asked you to disclose travel plans and whether you participate in activities that insurers like & # 39; high risk & # 39; such as diving or hang-gliding.
Life insurance companies use this questionnaire to assess how much of a risk you are and the higher the risk, the higher the monthly premium you pay. If you have not indicated that you want to travel or participate in a risky activity and then take out a policy, and something terrible happens, you have given your insurer a reason not to pay the life insurance benefit to your beneficiaries.
If the claim on this basis is refused, the beneficiary is forced to hire an insurance lawyer to fight it. Then, even if the refusal is reversed, any misrepresentation in that first questionnaire will cause the premium to change retroactively and the difference between what you have paid in premiums and what you should have paid will be deducted from the payment. from your beneficiary.
The bottom line: reveals everything.
If a policyholder commits suicide within two years of taking out a life insurance policy, a claim is simply rejected as fraud. In this case, the only way for a beneficiary to collect life insurance would be to successfully claim that death was accidental and not suicidal.
Accidents similar to suicide occur, although the victim did not intend to injure himself ̵
After two years, most policies treat suicide like any other cause of death.
3. Lost and forgotten life insurance policies
Knowledge is real power when it comes to life insurance. If you want to guarantee that your loved ones receive their insurance benefit, arm them with the tools they need to make a claim long before you expect them to make it.
First of all, let them know that you have a life insurance policy and that they are beneficiaries! Make sure they know where to find the paperwork with policy numbers when the time comes and explain the need to present a death certificate. Admittedly, it is not easy to consider talking much less about your own death, but if you had the power to take out a life insurance policy, you also have the power to discuss it with your loved ones.
If your beneficiaries do not know that you have insurance, they do not know that they must make a claim. Insurance companies are not trustees; they are not required to act in the interest of your beneficiaries. Arm your loved ones with the knowledge and documentation to submit their claim when the time comes.
4. Contestability issues
Insurers have the right to investigate claims made within the first two years of a policy. This "contestability period" combats potential fraud, keeping policy costs low.
During the disputability period, insurance companies may use any misrepresentation in a life insurance application to refuse a claim, even if you have just made a fair mistake and that mistake made no difference in your risk. Are you 5ft 8in tall, but the application says 5ft 9in? Born on December 27 but the application says December 24? Claim denied.
As long as the error or omission is not fraudulent, your beneficiary can undo these refusals with the help of an insurance lawyer. Even if the mistake, if not made, would have increased your premium due to an increased risk, your claim should not be simply rejected. Instead, your lawyer will negotiate with the insurer about which premium payments you should have made during your lifetime. The insurer will then deduct the difference between what you paid and what you should have paid from the death benefit and your beneficiaries receive the rest.
Know that fraud can invalidate a policy at any time . Do not do anything that can be considered fraud (for example, hide a terminal illness) when applying for a life insurance policy. Your partner or children will not receive anything, even when the competition period is over.
5. Expired policy / missed premiums
Insurance companies increasingly use a single missed monthly payment as a reason for not paying insurance claims. So what happens if you are disabled in a hospital before your death and do not receive your invoices?
If you succeed within one month after a missed payment, your beneficiaries should not have any problems with their claim. Life insurance policies have a grace period, usually 30 days, but sometimes longer, from the moment a payment is missed until the coverage expires.
There are two ways to succeed with a claim made after a policy has expired and the grace period is over:
First, insurance lawyers have successfully argued for a de facto deprivation exemption if an old customer was unable to pay his bill due to hospitalization or loss of faculties. In this case, the beneficiaries receive the full value of the policy.
Secondly, insurance lawyers have also successfully argued that the missed premium payments should be deducted from the final benefit that the beneficiaries subsequently receive. Many policies include such a provision, and even if yours is not, an insurance company will invariably be motivated to settle with your beneficiaries instead of challenging a lawsuit.
To be warned must be warned. Use these tips to ensure that your loved ones receive the benefit that you intend.
Veronica Baxter is a legal adviser who works from Philadelphia, Pennsylvania. She works for Chad G. Boonswang, Esq.
Photograph by Josh Wilburne on Unsplash