The primary purpose of life insurance is to provide financial protection for family members in the event of their loved ones’ death. In spite of the fact that life insurance is a valid, legally binding contract, it might contain quite a few loopholes that insurance companies might use to rid themselves of the obligation to pay out benefits. Thus, you should get independent insurance advice before signing any insurance contract in order to guarantee your protection.
The beneficiary has the right to file a claim with the company, as the insurance policy owner paid premiums in exchange for the insurance company’s promise to pay out a certain sum of money to the beneficiaries. Unfortunately, insurers will sometimes deny life insurance claims and refuse to pay out benefits, and it is worthwhile to educate yourself on this subject.
Below, you will find the necessary information about several of the most common reasons why insurance companies deny claims. Some include death due to suicide, drug overdose, illegal activities, murder by a beneficiary, or acts of war. In contrast, others address cases like unpaid premiums or the absence of beneficiary designation on file. Continue reading to find out why life insurance claims are denied!
Life insurance policies issued in the United States do not include suicide as a cause of death. If you have any kind of life insurance, including term-life, whole-life, and universal-life policies, and you commit suicide, your beneficiaries will receive nothing.
The logic behind this policy is that there is no way to predict which people will commit suicide and which ones will not. Because of that, it is safer to exclude suicide as a cause of death in order to avoid financial losses.
However, there is an exception to the rule. If you already have a life insurance policy and decide to commit suicide, the company may decide to pay out benefits if you die within two years of purchasing the policy.
In case you die from an accidental drug overdose, your beneficiaries are unlikely to get paid out under your life insurance policy. Why? Because drug overdose is viewed by most insurers as an act of suicide.
When the toxicology report shows that your death was caused by drugs, your beneficiaries will probably not get paid out under your life insurance policy. However, like with suicides, there is always an exception to the rule.
If you died from an accidental drug overdose, then your beneficiaries might receive benefits. In such a situation, it will be difficult for the insurer to claim that you were planning on taking your own life and committing insurance fraud.
Murder by Beneficiary
Murder is one of the most common reasons why life insurance claims are rejected. This is because murder has nothing to do with natural causes of death and only happens when one person intentionally kills another person.
To figure out whether or not a murder claim will be paid out under a life insurance policy, insurance companies will review the details surrounding the murder. For example, if the beneficiary murdered the policy owner in order to collect life insurance benefits, then it is highly unlikely that they will get paid out under the policy.
However, if the beneficiary was unaware of the money owed under the policy and murdered the insurer in self-defense, then they are likely to be paid out benefits under the policy.
Acts of War
If you are killed in an act of war, then your beneficiaries are unlikely to receive benefits under your life insurance policy. However, there are exceptions where your beneficiaries might receive benefits under your life insurance policy in the event that you are killed during an act of war.
For example, if you were working for a humanitarian organization or a contractor who provides services to the armed forces in an area where an act of war occurred, then your beneficiaries may be eligible for compensation under your life insurance policy.
Paying your premiums every month is important. If you do not do it, your policy will not remain valid, and your benefits will not be paid out after your death. That is why if you decide not to pay your monthly premiums, your beneficiaries could lose all rights to receiving money owed under your life insurance policy.
If you have been in a tough financial situation lately, you can use the reduced paid-up option. In short, it will allow you to stop paying your premiums in exchange for a reduction in your death benefit and no cash savings.
After reading about the most common reasons why life insurance claims are denied, you might be tempted to reject any life insurance policy that does not guarantee your protection under any circumstances.
However, before doing so, it is important to understand that life insurance is a useful financial tool that can help you prepare for the future. On top of that, you should read the fine print in order not to end up with nothing in exchange for your premiums.
With any life insurance contract, there are always reasons why life insurance claims are denied. Thus, it is important to educate yourself on common cases in which life insurance claims are denied before purchasing an insurance policy. Remember, when it comes to life insurance claims, ignorance is never bliss!