Life insurance seems like a no-brainer. If you buy life insurance and die, your beneficiary receives a payout, right? Not necessarily. There can be several reasons why life insurance is not paid. All policies contain an exclusion that would preclude payment or state grounds that can cause coverage to lapse.
The following are things that can void life Insurance:
Life insurance policies typically have exclusion for suicide, especially during the first two years the policy is in effect. It makes sense that no insurance company wants to sell a policy to someone who intends to kill themselves in order to provide money right away to a beneficiary. However, there is a legal presumption against suicide, so unless there is clear evidence of suicide, benefits may be payable. Also, depending on the policy, even suicide may be covered after two years. Finally, some states have assisted suicide laws that would allow someone with a terminal illness to end their life earlier rather than endure pain or loss of self-dignity. Suicide would likely, but not necessarily, be covered under such circumstances in those states.
Homicide is always a cause of death that will result in a payment. However, if the beneficiary has caused the death of the insured, the beneficiary may be disqualified from receiving benefits under the policy based on what is known as the “slayer rule.” Every state in the U.S. either has a law or court rulings that embody some form of the slayer rule, although it varies from state to state. In some jurisdictions, you must be convicted of murder or manslaughter in order to be barred from collecting. In other states, self-defense or accidentally causing the death of the insured will prevent the slayer rule from applying. But many jurisdictions do not apply the slayer rule if the killer is found insane, but that exception is not unanimous.
Hazardous activities, rioting, combat, or crime
Many policies refuse payment to an insured who dies while engaged in hazardous activities such as skydiving or hang gliding. Other policies go further and also exclude motorcycle riding or scuba diving. If the insured dies in combat or in a riot or other civil unrest, the death may also be excluded. Further, if the insured dies in the course of committing a crime such as while robbing a bank, benefits would not be payable. That exception has proven problematic because some insurers have taken a broad view of the meaning of a “crime” and have rejected claims when the insured committed a minor traffic infraction.
Drunk Driving or Drug Overdose
A common question we hear in our office is “Does drunk driving void life insurance”. Death occurring while driving a car under the influence of alcohol or narcotics is usually excluded, though, as is an overdose of an illicit drug or drugs used without a prescription.
Lying on the Application
Insureds who fail to truthfully respond to the questions on an insurance application, whether providing or omitting material information, will be denied benefits, especially if death occurs during the first two years of the policy. The first two years of coverage are known as the contestability period. After two years, even if there were misstatements made on the application, the policy is incontestable unless the statements were made fraudulently, i.e., with the intent to deceive. The misstatement does not have to be material to the cause of death. For example, a smoker who denies smoking may be denied coverage even if the cause of death had nothing to do with smoking such as a death occurring in a car accident.
Not Paying Premiums (Lapse)
If the insured fails to pay a premium when due, there is usually a 30 day grace period that permits a late payment for 30 days after the premium due date. At times, the insurer may still accept a late premium payment after the end of the grace period if the insured can show they remain in good health. However, in such situations, the reinstatement of the policy is likely to come with a new two-year contestability period.
Many states also have laws that continue coverage beyond the grace period in the event the insured dies within a certain period after the premium is due. If there is concern about whether the insured may have dementia, in order to prevent a lapse, it is a good idea to have a duplicate premium due notice sent to another family member as additional protection against a lapse in coverage.
Group life insurance slip-ups or special provisions
Many employers provide low-cost group term life insurance to employees. If the employee does not enroll when first eligible or seeks to increase insurance, the employee may be required to submit evidence of insurability to establish good health. In some instances, there is a slip-up in that process that can result in a loss of insurance. Also, group life insurance ends when employment terminates. However, disabled employees may be able to continue their coverage under a waiver of premium due to their disability. And even non-disabled employees may be able to continue their insurance under portability or conversion provisions in the group life coverage.
If your claim is denied, ask an experienced life insurance lawyer to review your case
Life insurance is an important component of everyone’s financial plan, which is necessary to provide financial security for survivors. However, even if all premium payments are current, there may be reasons why benefits are not paid. While some reasons may be valid grounds for coverage denials, the insurance companies are not always right. If you have been denied life insurance, and you question whether the denial was proper, you should consult with an attorney who is knowledgeable and experienced in handling life insurance denials. The law firm of DeBosky Sherman Casciari Reynolds PC has handled hundreds of life insurance claims for clients in Chicago and across the country. If you believe you have been improperly denied life insurance, call us.