Life insurance policies provide a financial cushion against the death of a loved one. They give your family something to fall back on in the unfortunate event that a loved one passes away. In return for regular premiums paid, the insurance company will compensate all beneficiaries listed in the policy if something happens to the policyholder.
As useful as a life insurance policy is, there are many unfortunate cases where life insurance claims are denied. It’s important to remember that insurance companies are businesses established to make a profit. If they were to pay out more in claims than they accumulate in premiums, they would suffer significant losses. This causes many insurers to closely examine claims and look for any legitimate reason for denying them.
Receiving a denial letter for a life insurance claim can be devastating. You may be relying on this compensation to take care of your family, settle outstanding bills, or even attend to a medical emergency. That is why it’s important to understand the reasons for life insurance denial and how you can appeal the decision to receive the benefits that you and your family deserve.
How Life Insurance Works
A life insurance policy is essentially an agreement between the insurance company and the policyholder. The policyholder pays premiums, and the insurer provides compensation to beneficiaries in the event that the policyholder passes away.
There are many different variations of life insurance policies. Some last for life and mature if the death of the policyholder occurs, while others may expire (and no longer provide coverage) after a specific period of time (10 years, 20 years, etc.). The policyholder also has flexibility in selecting how often they pay premiums. Some may prefer to pay monthly, while others pay biannually or annually.
Funds from the insurance payout are often used for many different purposes, including funeral expenses, settling outstanding bills, mortgage payments, and many more costs that may arise after the death of a loved one. You can think of a life insurance policy as a supplement for your income if you were to pass away.
Many people have families that depend on them to provide food, shelter, healthcare, and other important needs. A life insurance policy provides the backup necessary to keep your family in good shape if something were to happen to you.
Types of Life Insurance Policies
Not all life insurance policies are the same. Some are designed to mature after a fixed amount of time, while others will mature upon the death of the policyholder. There are 3 main types of life insurance policies you may encounter.
Whole Life Insurance
A whole life insurance policy is a permanent insurance option designed to cover you for as long as you’re alive. This means that the policy has no expiration date and it remains active throughout your lifetime. Your beneficiaries will receive coverage at any point when the policyholder passes away.
Whole life insurance policies often have higher premiums due to the longer coverage period that they provide. These policies also come in handy for families that are looking to transfer wealth to their beneficiaries (as part of an estate planning tool). The premiums paid for a whole life policy are typically fixed and your beneficiaries will receive the payment tax-free.
Term Life insurance
The more common life insurance policy is term life insurance. A term policy covers you for a specific number of years, after which the coverage expires. For example, if you purchased a 30-year term policy, your beneficiaries would receive benefits if you were to pass away within those 30 years. Due to the limited coverage period, term life insurance policies often have lower premiums than whole life policies.
The biggest caveat with term life insurance is that you may end up outliving the period of the policy. For example, if you signed up for a 20-year policy, you may still be alive after the 20 years are over. The policy will thus expire after this period goes by.
You can choose to extend the coverage for a term policy after it expires, but this will cost you a higher amount in premiums paid.
Universal Life Insurance
The third type of life insurance you can obtain is a universal life insurance policy. A universal policy is a flexible variation of a whole life policy. It provides lifetime coverage, but you can also adjust your premiums and coverage options over time.
A universal policy gives you more control over the type of coverage you would like your beneficiaries to enjoy, as well as how much in premiums you would like to pay over the years. Universal policies are also used as part of an estate planning strategy or for long-term income replacement.
How Much Can You Expect to Pay?
Life insurance policies are priced based on risk factors. If an insurance company views you as more of a coverage risk, your premium payments may end up being higher. Insurers typically maintain “classes” of policies, where persons of higher risk are placed in higher classes.
The following are the primary factors considered when a life insurance company is determining your premium amounts.
- State of medical health
- Nicotine use (and other drug use)
- Engaging in dangerous hobbies
- Frequency of travel
- Driving record
As part of your application, it’s not uncommon for a life insurance company to request your medical records, inquire about any past medical or drug complications, and review your driving record or criminal history. These variables are all used as part of a complex algorithm to determine your coverage risk.
Denials for Life Insurance Claims
Depending on the coverage option you choose, premiums for a life insurance policy can be quite expensive. Many policyholders religiously pay their premiums for many years, only to have their claims denied when they need coverage for their beneficiaries.
For a life insurance policy, a denial can be particularly devastating. This is because your beneficiaries are the ones who will struggle to file an appeal and follow up with the insurance company after you pass away. The policyholder will not be there to help lead the fight against a wrongful denial for coverage. In addition, the emotions that surround the death of a policyholder make it even more challenging for the family to pursue a denied claim.
It is for these reasons that seeking legal representation for a denied claim is important. Legal professionals can guide you through the complex terminologies of a life insurance policy, as well as exploring valid grounds where you can file an appeal decision.
The unfortunate reality is that many life insurance claims are denied for various reasons. The denial may be due to a mistake on the part of the policyholder or on the part of the insurance company.
Regardless of the specific reason, you should be prepared to closely examine the reason for a denial. Many denial letters issued by insurance companies are vague and hurriedly prepared. You can often find a reason to appeal the decision and receive the coverage that your deceased loved one intended.
Why Your Claim May Have Been Denied
It’s important to understand common reasons why a life insurance claim may be denied. Some denials arise from misrepresentation of information, while others arise from internal decisions made by the insurance company.
Perhaps the most common reason why a life insurance claim may be denied is because the policyholder withheld important information from the insurance company. For example, the policyholder may have concealed the fact that they heavily smoked, drank, or used drugs.
Such information is a disclosure requirement for life insurance, and it should be disclosed before receiving coverage. Lifestyle omissions may also misrepresent your level of risk to the insurance company, and this could be used as grounds to deny a claim.
As part of their risk assessment plan, life insurance companies consider pre-existing conditions when determining coverage options and how much a specific plan will cost.
Some pre-existing conditions such as cancer, diabetes, heart complications, and HIV are viewed as significant risk factors for policyholders. If the insured person failed to disclose a significant pre-existing condition, this may be used as grounds for denying a claim.
Death during the contestability period
Many life insurance companies maintain a specific period where they can contest coverage for policyholders. This contestability period is put in place to investigate and verify that all the information provided by a policyholder is correct.
If any of this information is found to be false, a claim can be denied even if the cause of death wasn’t directly related to the claim. For example, if the policyholder omitted the fact that they had cancer, a claim against their policy can be denied even if the cause of death was a car accident (and not their cancerous condition).
Death occurs outside the coverage scope of the policy
Not all policies cover all types of death. There may be exclusions for activities such as skydiving, deep sea diving, cliff hanging, and other potentially dangerous activities. Other policies also have exclusions for suicide.
Policyholders should carefully read the policy statement to find out which types of death aren’t covered by insurance.
Falling behind on premiums
Missing premium payments may also cause a person’s life insurance policy to lapse. If it lapses, your beneficiaries may not receive coverage if you were to pass away during this time. It’s important for all policyholders to remain current on their premiums or to contact their insurance company in case of financial hardship.
Appealing for life insurance coverage for a lapsed policy can be quite challenging (if not impossible) to obtain.
Was the Denial Reason Valid?
While there are many valid reasons why a life insurance claim may be denied, some insurance companies tend to deny claims in bad faith. Insurance companies have a fiduciary duty to their policyholders when providing coverage. Therefore, an insurer can only deny coverage based on a valid reason. Wrongful denials- issued simply because the insurance company doesn’t want to honor a claim- can be contested.
Here are some common circumstances where a life insurance company can refuse to pay a claim in bad faith.
Cases of accidental death
Many life insurance policies have provisions that the death of a policyholder must be accidental in nature. If your loved one’s policy has this provision, you may find that the insurance company is working hard to classify the death as being non-accidental. Such blatant attempts at avoiding to honor the policy can be contested.
Some insurance companies also try to minimize the amount of a claim. They may give you a bogus reason as to why your claim should be denied, and follow it up with offering a much lower amount for the policy. For example, they may offer you a mere $65,000 for a $700,000 policy.
This attempt to settle a policy for only a fraction of its actual value is a common practice by insurance companies. Make sure you explore all appeal avenues (with regards to your claim) before you decide to settle.
Annuity options for the elderly
Some insurance companies prey on elderly people with policies that don’t mature until after the policyholder passes away. For example, they may claim to offer annuities that mature only after 5 years from the signing of the policy. Such unethical and predatory policies should be reported immediately so that the denial can be contested.
Understanding the Claims Process for a Life Insurance Policy
If your loved one passes away and you file a claim for their life insurance policy, there are 3 possible outcomes; an approved claim, a delayed claim, or a denied claim.
If all goes smoothly, a filed claim will be typically approved and honored within 30 days. The application process includes providing the following documents to the insurance company.
->Autopsy and toxicology report
->Other relevant medical records
->Beneficiary documents such as IDs, addresses, etc.
Once all the relevant information has been received and verified, the insurance company will approve your claim and disburse your funds.
Another possible outcome is that the claim will be delayed. Delayed claims often occur if there’s information that still needs to be verified. A delayed claim can occur for a few months, or even for as long as a few years. If a delayed claim is taking too long, you should be prepared to file an appeal.
The third possible outcome is a denied claim. Denials occur due to many different reasons, some valid and some invalid. You can always appeal a denied life insurance claim to receive the compensation you and your loved ones deserve.
Preparing an Appeal for Life Insurance Denial
Filing an appeal for a denied life insurance claim is an important step to take. Many valid claims are wrongfully denied by insurance companies that are simply out to maximize their profit. Filing an appeal ensures that your case is reviewed and given careful consideration.
A typical appeals process involves gathering all the supporting documents, working with a lawyer, and having the appeal investigated by your insurance company. Wrongful denials for valid claims occur more often than you think. For example, a policy may have been denied due to what the insurance company claims was a non-accidental death. However, you may have enough evidence (such as police reports and autopsy reports) to prove that the death purely accident. Filing an appeal in such cases is important to ensure that you receive the coverage your loved one intended for you and your family.
Insurance companies are also legally obligated to act in good faith to policyholders. Any wrongful denial of a valid claim is grounds for a lawsuit and any applicable damages. When filing an appeal, the following are important steps to take:
- Carefully read through the denial letter to find out why your claim was denied
- Collect all supporting documents that may back the relevance of your claim
- Consult a lawyer to help you navigate all the legal steps involved
- Submit your appeal and follow up on its status
Life Insurance Denial Appeals Attorney Near Me
Being denied life insurance coverage can be a devastating experience. You may be relying on the coverage provided by the policy to take care of your family and cater for any expenses incurred during the death of your loved one. Furthermore, the emotional toll that surrounds a loved one passing away may add salt to the wounds of a life insurance denial.
This is why it’s important to seek the help of a lawyer when contesting a denied claim. A lawyer can help you gather all supporting documents and put up a strong fight against the insurance company. They can also help you file a lawsuit, if necessary, to pursue the benefits that your loved one paid premiums for.
Stop Health Insurance Denial are the legal professionals you need by your side during such trying times. Have you received a denied life insurance claim? Contact us today at 310-695-5241 to speak to one of our premier attorneys.