5 Common Reasons Why a Beneficiary Could Be Denied Death Benefits

One of the most caring things you can do for your family is ensure financial security after your death. For most, this is done through a life insurance policy. In most cases, the death benefit is paid without any issues. Unfortunately, there are situations where the beneficiary is denied pay out, leaving them both financially and emotionally stressed.

Here we explain the most common mistakes consumers make that lead to the denial of a life insurance claim:

1) Material Misrepresentation

Once you enter into your contract/life insurance policy with the insurance company, your two year contestability periods begins. If you pass away during that time, the claims representative will conduct an investigation to ensure everything on your insurance application was truthful and that nothing was left out. If you lied or omitted on your application, the carrier has the right to refuse pay out, regardless of the cause of death.
Once you’ve survived the contestability period, the beneficiary’s risk of being denied due to misrepresentation is significantly reduced.

2) Policy Lapse Due to Nonpayment of Premiums

This is probably the most common reason for claim denial. While premium payment is required for the policy to remain in force, there are times when nonpayment of premium isn’t a sufficient reason for denying a claim. Beneficiaries who are denied for this reason should confirm with the carrier that premium-due notices were sent in a timely manner, to the correct address, and that the notice very clearly warned the insured that a policy lapse was imminent.

3) The Type of Death Isn’t Covered

Historically, life insurance carriers excluded death from dangerous activities such as skydiving, war, or scuba diving. While this is no longer the norm, many carriers will still exclude death by suicide. Many carriers now waive that exclusion once the policy’s contestability period runs out.

4)  Beneficiary Designation Not on File

When filling out the application, be sure to designate both a primary and secondary beneficiary. If no one is designated, your loved one could be denied pay out. Every policy has provisions regarding who should be paid out in this situation, as do most states. While a claim will, eventually, be paid, non-designation of a beneficiary will, at the very least, prolong the process.

5) Post-Divorce Beneficiary Changes

In many divorce cases involving minor children, life insurance is ordered by the court. The ex-spouse is to be listed as the beneficiary on the policy and must be maintained until the minor child is of age. If the parent later violates this court order by changing beneficiaries, the new beneficiary could be denied coverage.

In a perfect world, every life insurance claim would be paid out without delay or question. If you find yourself in this unfortunate situation, be sure to consult with a professional immediately. Make sure you understand your legal rights and obligations and do not accept the denial without going through the appeals process. More often than not, it’s worth the battle.