Most people with dependents invest in life insurance to safeguard the future of their loved ones. But did you know that life insurance claims are often denied and disputed? Unfortunately, life insurance companies can be much less enthusiastic about paying claims than they are about collecting premiums. According to MDF law, here are some common reasons for life insurance disputes.
Cause of Death
Each life insurance policy has multiple exclusions that highlight situations that will not be covered by the policy. These exclusions are worded ambiguously on purpose so as to encompass a wide variety of different circumstances and are routinely used as a basis to deny insurance claims.
Death Due to Suicide
Most life insurance policies have a suicide exclusion clause where insurers may deny a claim if the policyholder died due to suicide within the first two years. This exclusion is designed to deter people from committing suicide for the financial benefit of their beneficiaries.
While many beneficiaries do not think that they can contest the decision of insurance companies, the law requires insurers to prove their claim that the death occurred due to a conscious decision to end a life and not as a result of an unintentional action.
Even if the cause of death is suicide, beneficiaries are entitled to their claims if attorneys can argue that the death was not a calculated action to defraud the insurance company. For instance, if the policyholder committed suicide as a result of a serious mental illness.
Death Due to Substance Use
Similarly, most life insurance policies have substance use exclusions because they deem alcohol or drug-related deaths to be self-inflicted. When a policyholder’s toxicology report shows the influence of drugs, insurers can unfairly apply this exclusion, even if the cause of death had nothing to do with the substance use.
In addition, accidental prescription drug overdose claims can sometimes be denied because insurance companies may not consider the entire medical picture of the policyholder and are too quick to shut down the claim. Experienced life insurance attorneys can challenge these claims with the assistance of medical professionals.
Death Due to Illegal Activities
Deaths that occur during the participation of illegal activities are another exclusion on most life insurance policies. These activities can include illegal consumption of alcohol or drugs, breaking traffic rules, driving under the influence, trespassing on private property, and more. If the policyholder lost their life during any of these circumstances, insurers may try to deny the beneficiary’s death benefits claim.
Death Due to Dangerous Activities
Insurance policies usually have an exclusion clause that omits death due to high-risk activities or extreme sports such as skydiving or scuba diving. For example, if the policyholder had a heart attack while bungee jumping, the insurer may deny the claim.
If the policyholder was known to engage in such activities regularly, the insurer may further assert that the policyholder committed material misrepresentation when they did not mention it during the purchase of the policy, and deny the claim on that basis.
Material Misrepresentation
Material misrepresentation refers to when policyholders make a false statement or an omission of information on their insurance application that prevented the insurance company from correctly assessing the risk—and subsequent cost—of the policy.
Material misrepresentations can include misleading information about the policyholder’s income, medical history, alcohol or tobacco use, and possible hazardous hobbies. If an insurance company discovers information that is not reflected on the life insurance policy application, it may automatically deny the claim, even if the cause of death was unrelated to the misrepresentation.
Lapses in Payment
Another common reason for insurance companies to deny claims is that policy premiums were not paid on time. Technically, policyholders have a grace period to make up for missed payments to prevent insurance companies from canceling their coverage.
That said, the terms and conditions of insurance policies can be (deliberately) confusing, with varying grace periods based on state and policy payment terms. Hence, having the support of a life insurance attorney can help beneficiaries to achieve a settlement even after a policy lapse.
Attorneys can show that insurance companies did not do their due diligence to prevent a lapse in payment by failing to provide clear and timely notices of overdue premiums or by allowing policyholders to consistently make late payments without cancellation warnings.
Unclear Beneficiaries
Sometimes, the policyholder of the life insurance fails to update their beneficiary details after a major life change and there may be multiple people—including former spouses and children—who seek to make the same claim on the policy.
There are also instances where there is no beneficiary named on the life insurance policy, resulting in the deceased’s estate being put through the time-consuming and complicated process of probate.
Life insurance disputes are more common than we would like to think. Without the assistance of legal representation, many people who have lost their loved ones will further be denied essential financial support. By engaging the services of a knowledgeable life insurance attorney, you can ensure that your rights are protected and that you receive your claim in the event of an unexpected loss.