What Is The Percentage Of Life Insurance Claims That Are Denied?
Processing a life insurance claim is a relatively simple process. Most claims are routinely processed within one or two weeks. However, in some rare instances, a life insurance carrier may deny a claim. According to estimates, roughly 2% of claims are rejected, and the most common reasons why life insurance will not pay out are:
|Material Misrepresentation||A false statement or omission that affects the insurer’s decision to accept or reject the application. For example, failing to disclose a pre-existing chronic health condition.|
|Suicide within the First Two Policy Years||If the insured commits suicide while the suicide clause is in effect, the insurer will not pay out the claim. However, the clause does not invalidate the life insurance plan, and the beneficiaries may receive a refund of the premiums.|
|Illegal Drug Overdose||If the insured died due to drug overdose during the contestability period — the first two years of the policy — the insurance carrier is more likely to turn down the claim than after the contestability period is over.|
|Death while Participating in an Illegal or an Excluded Activity||If the beneficiary is suspected of murdering the insured or being involved in the insured’s murder, the provider will not pay out the death benefit. Likewise, if the insured was murdered while participating in a criminal or unlawful activity, the claim will be turned down.|
|Policy Lapse||If you miss a premium payment and do not catch up with it in the grace period, your policy will lapse, and you will no longer have coverage. If you pass away after your policy has lapsed, the insurance provider will not process the claim request.|
It is important to note that if a life insurance carrier rejects a claim, it will provide a written explanation as to why it did so. If the insured or beneficiary thinks the claim was wrongly denied, they can contact the insurer with appropriate proof. If the insurer refuses to reverse its decision, the insured or beneficiary can choose to contest it, but legally contesting a denial of claim can be expensive. Therefore, it is crucial to understand the common reasons why life insurance will not pay out to ensure that the beneficiary receives the death benefit.
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