Why do Life Insurance Claims get Denied? And what can you do about it?
Life insurance is the preferred method chosen by many people to cover funeral and burial costs and make up for the loss of income, ensuring that important obligations like a home mortgage or car payments can continue to be met even after the loss of a wage earner. Life insurance also makes a sensible investment for many people and serves as a valuable addition to many families’ financial portfolios.
Sadly, people sometimes file a life insurance claim after the loss of a loved one, only to have the claim denied by the insurance company. Insurance companies are in business to make money, and if they believe they have a defensible basis for denying a claim or paying a lower amount in benefits, then they will. There are actually a number of ways insurance companies can find to deny a life insurance claim, and not all of these actions are taken in good faith. Read on to learn some of the most common reasons for life insurance claim denials and what to do if your claim is denied.
Lapse
Life insurance policies are only good as long as you keep up the premiums. If you stop paying premiums, the policy lapses. If a term life policy lapses, the intended beneficiaries are left with nothing; a lapsed term policy has no value. In the case of a whole life policy, whatever cash value was built up in the policy may go toward missed premium payments until that cash value is exhausted (confused about the difference between term life and whole life? See Life Insurance 101: How to Decide Which Type of Policy is Right for You).
What do you do if the insurance company says the policy lapsed, but you always thought the policy was in force? Do you just take their word for it? Life insurance companies are huge companies with massive billing departments, and they make mistakes. Searching your own records can be difficult, especially if the lapse is said to have occurred a long time ago or if the deceased was the one who made the payments and kept the records. Things can get especially confusing in the case of policies like universal or variable (or variable-universal) life insurance. With these types of policies, it’s not always necessary to pay a premium every month to keep a policy active. If the insurance company did not apply premiums the way you thought they would or the way you instructed them to, you may have a complicated mess to untangle and prove that your policy never should have lapsed. You may need legal help to make your case.
Rescission
You applied for life insurance, and your application was accepted by the insurance company, which issued you a policy and happily pocketed your premiums month after month, year after year. Now that a claim is being made, the insurance company decides it’s a good time to go back and take a closer look at that original application. Is the application inaccurate or incomplete? Be assured that if there is anything in the application that can be used against you, the insurance company will use it to cancel or rescind the policy and decline to pay the benefit.
Applying for life insurance involves completing a comprehensive application including your personal and family medical history, as well as completing a physical exam in most cases. You want to present yourself in the best light during this process so you can get the best rate, but beware that wherever subjectivity lies, so does the potential ground for a claim denial. Certainly, don’t lie about your age or health on the application; the insurance company could cancel the policy or cut the benefit by the amount of additional premium they would have charged had they known your true age or health history. If the matter is subjective or arguable, be prepared to argue that your representations were accurate. You’ll want to have an experienced insurance lawyer represent you in this process to make your arguments in the strongest and most successful way.
Requests for information
It is reasonable to expect the insurance company to require proof of the death and enough information for them to determine the death was caused by a covered event. If this information can’t be provided to the insurance company’s satisfaction, expect they’ll deny the claim for that reason. Unfortunately, insurance companies sometimes make interminable or unreasonable requests for documentation. Often times it’s information you simply can’t get. Other times, the insurer is only requesting information that they can use against you to deny your claim. This is an example of insurance bad faith, in which case you’ll need an experienced bad faith insurance lawyer to hold the carrier accountable and pursue money damages on your behalf.
Exclusions
Insurance policies always sound comprehensive when they are being sold to you; it’s only later when you make a claim that you are enlightened about the long list of exclusions buried deep within the policy. In the case of life insurance, common exclusions include death during the commission of a crime or due to war or military service, suicide (within the first two years that your policy is in force), death while engaged in inherently dangerous activities, and more. Other times, you may find out too late that you simply bought the wrong type of policy, such as accidental death & dismemberment instead of a standard life insurance policy. AD&D insurance, as the name implies, only covers accidental death and excludes all sorts of other reasons that are covered under ordinary life insurance.
So, what do you do if your claim is denied?
In most instances, it would serve you best to hire an insurance lawyer to pursue your claim for you. By pursuing your claim on your own, you could make statements the insurance company will use against you or make other mistakes. For instance, you could adversely affect your rights by cashing a check you think is partial payment on your claim, when actually it’s a refund of your premium, meaning the insurance company has canceled your policy and you’ve accepted that cancellation. Also, policies will have strict rules in place about when and how to appeal a claim denial. Some of these rules are governed by federal laws such as ERISA, and failing to follow the law or terms of your policy can delay or defeat your claim.
An insurance lawyer will know the law and be familiar with the technical language included in complex insurance policies. Your attorney, therefore, is better equipped to deal with the insurer on an even footing, argue effectively, and litigate your claim if necessary. It shouldn’t cost you anything to talk to a lawyer about your claim, and their fee will come as a portion of the recovery, so you won’t be worse off if they are unsuccessful, and you’ll receive the bulk of your claim if they are.
