It may seem unfair when you realize your life insurance policy doesn’t pay out. When it doesn’t provide the financial security it is supposed to give, it will seem to be nothing but cash in a void. What could be the reasons life insurance won’t payout? While it can seem unjust from the policyholder’s side, there are certainly reasons why life insurance won’t payout. Here we look at the common situations that can be the reasons and how to avoid them to get the intended policy benefits.
Can insurance companies deny claims?
Similar to how insurance companies pay out valid claims, they have the right to deny or delay claims as well. However, it usually happens with claims that do not meet the terms and conditions outlined in the policy. However, comply with all requirements to help prevent claim denials.
What are the reasons why life insurance won’t pay out?
You might be aware of what qualifies you for a payout but might not be aware of what disqualifies you from receiving the payment. Here are a few terms that you must be familiar with while applying for a policy.
- Contestability period
- Act of War
- Policy term
- Beneficiary
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What is the minimum duration for a life insurance payout?
The average life insurance payout time is between 30 and 60 days. If there are no roadblocks, you might receive it in two weeks.
Top why reasons life insurance won’t payout?
There are a few reasons why you might not get your life insurance money, though the reasons may vary from company to company. Here we discuss the most common reasons life insurance won’t payout.
Deaths that weren’t covered in the policy
Life insurance policies provide a lump-sum payment to the beneficiary upon the death of the policyholder. However, there are some deaths that can deny payment to the beneficiary.
Suicide
Life insurance companies normally include a suicide clause that will rule out certain causes of death from coverage. However, in most cases, if the policyholder dies by suicide within the specified period, there will be a denial of claims. If the death happens outside the specified term, the policy will be paid out.
Risky behavior leading to death
Policies do not cover deaths resulting from recreational or other hazardous activities. In other words, if you are someone who is constantly involved in adventure sports and haven’t disclosed it in the policy, there may be chances that your claim might be denied if the cause of death is the sport.
However, only specific activities are excluded from the policy. Since it can be a reason why life insurance won’t payout. You must certainly make a note of it, especially if you are someone who is regularly involved in adventurous recreational activities.
Criminal activities
Any life insurance company could refuse to pay your policy claim if your death occurred during a criminal activity like theft or even the illegal consumption of alcohol or drugs. However, sometimes your claim can be denied if your death happens even while trespassing, which is considered a criminal activity.
Deaths that happen during war
The vast majority of life insurance policies contain an Act of War exclusion, which enables the insurance provider to reject claims related to civilians who were killed in wars or by terrorist acts. However, this mainly applies to journalists and other individuals who travel to places of conflict or war zones. Similarly, medical volunteers working in such areas can be denied claims due to this clause.
Death during the waiting period
The first 12 to 24 months after the policy starts is known as the waiting or contestability period. In other words, it will take up to 2 years for the policy to become active. Therefore, if the death happens during this window, the company can investigate your records, and if a discrepancy is found, you might not get a payout.
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Misrepresentation of information
Any underlying medical conditions and withholding any information while filling in the application will consequently result in policy rejection. For example, your drinking and smoking habits must be accurate when you apply for insurance.
Failure to pay premiums
If you don’t pay your premiums on time, your policy will be canceled. In other words, it might be the main reason life insurance won’t pay out However, most companies will allow a grace period at first when you miss the premium payment. Meanwhile, if you do not follow up with the company during the grace period, then your policy will certainly lapse.
The employer did not submit a waiver of premium
If you are part of a group insurance plan, then it is the responsibility of the company to update the details and information. Similarly, it is equally important that you go through the details of the policy as well. In other words, if an employee has group life insurance and is out of work, the life insurance company must receive a disability waiver of premium from the employer. If the policy lapses because the disabled worker didn’t pay the premiums, the beneficiaries’ claims for the death benefit will be turned down.
Issues with the beneficiary of the policy
No beneficiary is designated on the policy file
If you fail to add the beneficiary’s name while applying for life insurance, then your policy might be denied. However, every policy has terms and conditions for paying out the claim if the beneficiary is not designated.
Change in beneficiary after a divorce
If you are a divorcee with a life insurance policy, then your ex-spouse may be automatically removed from your policy according to state laws. During a divorce, courts often order parents to name their children as beneficiaries on their life insurance policies. However, if the parents do not obey the order, the policy will be denied when the children claim.
Similarly, when there are no updates on the beneficiary’s name after a major life event like divorce or marriage, there are chances for a group of people to claim the death benefits.
Minor beneficiary
In this case, the life insurance policy will pay out, but after a delay. This is because the minor might not have reached the age to receive the policy amount.
Only a primary beneficiary
When the primary beneficiary is deceased, and the policy has only one beneficiary added, the death benefits of the policyholder might be put on hold until the company finalizes the beneficiary.
Living outside the country
Another reason why your life insurance policy won’t payout is if you move abroad after purchasing a life insurance policy. In that case, the insurance company may not pay your beneficiary if you pass away while living abroad.
Outliving the policy term
Except for whole life insurance, most of the other policies are for a fixed term. Therefore, if you outlive the policy term, you might not receive the death benefits.
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What should I do if my life insurance policy doesn’t pay out?
If you believe that the reasons life insurance won’t pay out for you do not fall into any of the categories mentioned above, firstly, review the policy and determine the reason for the denial. Secondly, you can look for legal assistance. Thirdly, you can file a complaint with your state insurance commissioner’s office
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