Life insurance is supposed to provide beneficiaries with peace of mind following the death of a loved one. Policyholders pay their premiums, confident that their survivors will receive a payout to help with some of the financial burden associated with funeral costs or paying off a mortgage. But what happens when the insurance company denies a claim for death benefits?
It’s difficult to say how often life insurance claims get rejected because we only see the ones that are turned down. A U.S. study referenced in a recent Forbes article shows that only a small percentage of claims are rejected, but here in Canada, our practice handles a significant number of these types of claims every year. And here’s one thing we know for sure: A denial letter from the insurance company isn’t necessarily the final word.
In this post, I’ll review the most common reasons life insurance claims are rejected and explain the benefits of getting a second opinion on your case from a lawyer for life insurance who has experience handling these types of cases.
Filing a life insurance claim
Having represented many clients whose life insurance claims were originally rejected, I know how emotionally exhausting it can be to battle an insurance company while you are grieving the loss of a loved one. One of the things I love most about being a lawyer is the look of relief in a client’s eyes knowing they have an advocate to champion their cause and that they are no longer in it alone.
When you file a life insurance claim, your provider starts an investigation that can take anywhere from days to months, writes James Battiston in a recent Ratehub column.
“It begins with the insurer gathering all the necessary paperwork. Most companies require all paperwork to be submitted between 90 days and 12 months following an individual’s death. The Canadian Life and Health Insurance Association reports that, on average, most payments take about seven to 10 days to be issued after the paperwork is received,” Battiston says.
If the insurance company finds any false information on the application, it can deny payment of the benefit. A denial letter will include the reason your claim has been denied. In terms of taking legal action, this is the most critical piece of information your lawyer will need to assess your case.
Why are claims denied?
It’s important to point out that any claim filed in the first two years of a policy will be closely scrutinized by the insurance provider. If the claim is denied, the beneficiary typically receives a lump sum representing the value of premiums paid over the term of the policy.
There are many reasons life insurance claims don’t pay out, but let’s look at some of the most common ones I see in my practice:
- Lapsed payment of premiums triggers cancellation of the policy. This happens more often than you might think and underscores the importance of paying premiums on time.
- Insufficient documentation. Insurance companies often require additional informational around the cause of death. For example, if the deceased had a heart attack, the insurance provider will review the policyholder’s application and may even check with their doctor to see if there was any history of cardiac issues.
- Misrepresentation on the application. When you apply for life insurance, you have an obligation to disclose relevant information about your medical history, risky behaviours and whether you’re employed in a dangerous job. Failure to do so may void the policy, regardless of whether the misrepresentation had any bearing on the cause of death. The insurance company could argue that had you disclosed the information, it may have charged a higher premium or not have offered you a policy at all.
- Manner of death excluded in the policy. Some life insurance policies have exclusions for death that occurs as the result of suicide or engaging in high-risk activities such as skydiving.
A case on which a colleague worked years ago involved a denied claim related to a man’s death by drowning. The insurance company argued it was suicide and that because the death occurred within the first two years of the policy, no payout was due. At trial, diving experts testified that accidental drowning was more likely, and the court agreed.
Honesty is the only policy
While your life insurance policy lays out the terms and conditions under which benefits will be paid, your application is arguably the most important document in the legal contract with your insurance provider.
As an experienced lawyer for life insurance, I cannot stress enough the importance of being as upfront and honest as possible in the application. Errors and omissions, even innocent ones, can void the policy.
I worked on a case many years ago where the insured person said they had never smoked. The insurance company found out that the person had one cigar at a wedding but didn’t disclose it on the application. The claim was denied.
How a lawyer can help
At Edwards Pollard LLP, we have handled many denied claims for life insurance and we pride ourselves on being able to quickly assess the merits of a case.
We start by examining a copy of the application for life insurance as well as the insurance company’s denial letter. Those two documents often provide enough information to determine the strength of a case, but, sometimes, we enlist an expert underwriter to provide an opinion.
These cases involve very technical arguments relating to medical information and underwriting of policies. Success depends on the degree of risk we can create on the insurer. If the facts put some exposure on the insurer, it will be more likely to entertain settlements. But on cases where it feels justified, the insurer will leverage its ample resources to fight it in court.
If your life insurance claim has been denied, you have a right to dispute the insurer’s decision. The experienced lawyers at Edwards Pollard LLP can explain your options and guide you on how to best proceed with your case. We have successfully settled many life insurance claims. Give us a call us at (289) 529-0404.