What Can You Do When the Life Insurance Company Denies Your Claim?

A life insurance policy is a dense, technical legal document. If the insurance company denies your claim for benefits, the policy might be the first place you turn to figure out what went wrong, but it’s not likely you’ll find your answer there, at least without legal help. A better starting point might be the denial letter itself. When an insurance company denies a claim, it is required to send a written denial to the claimant listing the reason for the denial and outlining the steps to take if the claimant wishes to contest the denial. The letter might simply point back to the policy and cite one or more policy provisions without providing any real clarity, but it should at least point you in the right direction.

Why Do Insurance Companies Deny Claims?

The big-picture answer to that question is to save money. Insurance companies make money by collecting premiums, and they lose money by paying claims. Of course, insurance companies are required by law to pay valid claims, and they can harm their reputation as well as lose in court by wrongfully denying claims without a valid reason or without providing any reason at all. Insurance companies – the ones that stay in business – will instead base their denials on reasons that appear legitimate on the surface and may in fact be justifiable. It’s then up to the beneficiary to figure out whether the denial is correct or might just be some pretext to get out of paying. In that latter case, the beneficiary must then decide to take the additional step of contesting the denial, which can involve a long series of back-and-forth letters and phone calls, internal appeals and grievances to various departments at the insurance company, hiring an attorney and going to court. If that process sounds daunting, that’s because it is, and insurers hope that by putting up a plausible reason for denying a claim, the beneficiaries won’t bother to pursue the claim any further. They are grieving, they are busy with countless tasks after the loss of a loved one, and they are inclined to believe the insurer and that it would be futile to fight the denial.

Some of the most common reasons given for denying a life insurance claim include:

Missing Documentation

This is probably the best-case scenario among all reasons for denying a life insurance claim. If key information such as a death certificate wasn’t provided along with the claim, the insurer is within its rights to deny the claim. Thankfully, with a little effort it is usually possible to fix these discrepancies and provide the insurer with the information it needs to process the claim.

If the insurer makes repeated requests for documentation already provided in different formats, then it might be acting in bad faith to get the claimant to give up on the claim. When insurers engage in bad faith tactics like these, they expose themselves to legal liability. With the help of an attorney, you can sue them not only for death benefit under the policy but also for interest and other legal damages for the harm their delay or denial has caused. Courts can also award punitive damages in such cases to punish insurance companies for bad faith conduct and deter future bad faith by that company and others. You’ll need legal help in these situations from an experienced and successful insurance law firm to put together a strong case that you can prove in court.

Lapse

A life insurance policy only stays in effect so long as premiums are paid, which might be required monthly, quarterly, or annually depending on how the billing was set up with the insured. One of the first things an insurance company will do when presented with a claim is look at the account to see if it is up to date or late. Lapsed policies are not uncommon, especially when the insured was paying monthly and died after an extended illness or long period of age-related decline. Individuals in these circumstances are more apt to miss a payment without noticing, giving insurance companies an out to decline a claim on a policy that they have been collecting premiums on for decades.

Most states have a number of laws in place to protect policyholders and beneficiaries from this unfortunate situation. For instance, California law allows policyholders to designate other parties such as a family member or beneficiary to receive a notice when the policyholder misses a premium and the policy is in danger of lapsing. Insurance companies doing business in California must inform policyholders of this right annually, including the right to add or change designees.

Insurers in all states are also required to provide a grace period before canceling a policy for non-payment of premiums. The grace period varies from state to state; 30 days is common. In California, the grace period is 60 days, and notice must be sent within 30 days of a missed premium and at least 30 days before policy lapse or termination. Many companies from out-of-state fail to adhere to California’s more generous 60-day notice because they are unfamiliar with the law, but by doing business in the state they are accountable for following the law.

Contested Claims

Life insurance policies contain a host of provisions governing what kinds of claims are included and what is excluded. A common response to a claim is to deny the claim as excluded by the terms of the policy. Having an insurance law attorney review the claim and policy can help determine whether the insurer has correctly applied the terms of its own policy or is on shaky ground with its denial.

Application Errors

Another common tactic to avoid paying claims is for insurance companies to go all the way back to the policyholder’s initial application for insurance and scour it intently for any errors or omissions. For example, did the insured fail to note a history of smoking yet ultimately die of lung cancer? Did they fail to disclose other insurance policies as required by the application, or did they incorrectly state income and assets?

To justify a denial on this ground, any error must be “material,” which is a legal term that might need to be determined in court. Also, in most cases, denials on this ground are limited to policy cancellations which occur during the contestability period that ends two years after the policy was issued. The contestability period gives the insurance company ample opportunity to review an application and cancel the insurance if it has a worthy reason. Once that window is closed, however, They cannot rescind a policy or take other actions based on application errors without proving intentional fraud.

How Do You Fight a Denial?

The insurance policy may include provisions for challenging a denial, and these steps should be outlined in the denial letter. State law might also provide guidance on how to fight a denial. It’s important in this regard to retain an experienced insurance law attorney to understand your rights and options, especially if you live in a consumer-friendly state like California.

Federal law may also play a role in many cases. For instance, the federal ERISA law governs employer-sponsored group life insurance plans. If the insured had one of these policies, ERISA rules apply, including a 60-day timeline to appeal a denial and the requirement to go through an insurance company’s internal administrative process for resolution.