What Can Disqualify a Life Insurance Payout?

7 Reasons Life Insurance Won't Pay Out

When you rely on life insurance to help your family cover their expenses, it's crucial to understand the exclusions that might prevent your policy from paying out. Here are some of the most common reasons an insurer may not approve a claim.

1. Material Misrepresentation

When you apply for life insurance, the company gathers information about your health history, occupation, tobacco use, hobbies and more to determine whether you qualify and your premium. If you lie or omit information that affects the insurer's eligibility decision, the rate you receive or your policy limit, the provider may deny the claim after your death.

Learn more: What Are Life Insurance Rate Classes?

2. Policy Lapse

You must be up to date on your payments to keep your policy active. When you stop paying your premiums, the policy will lapse, and you won't be covered if you die. Consider setting up autopay so your payments are always on time, and you don't risk leaving your family without coverage.

Tip: Most life insurance policies have a grace period that allows you to maintain coverage if the insurer hasn't received your payment. But the window is short. If you don't make a payment before the grace period ends, you'll be left without coverage.

3. Death During Contestability Period

The death of a policyholder during the contestability period doesn't automatically result in a denial. However, the insurance company has more leeway to conduct investigations and deny claims during this time.

Most life insurance policies have a two-year contestability period. When a policyholder dies within that timeframe, the insurer takes a closer look at their medical history and cause of death to identify potential fraud.

Your beneficiary may not receive a payout if the insurance provider finds that you weren't completely truthful on your application and your cause of death was related to that potential fraud.

4. Suicide

Life insurance policies typically have suicide clauses that exclude payouts for death by suicide that occur within a certain timeframe—two years from the date of purchase, in most states. If the policyholder dies by suicide during that period, the beneficiary won't receive a payout. However, insurers often cover suicide deaths after the clause expires.

5. Illegal Activity

Life insurance policies generally don't cover deaths that occur if the policyholder is doing something illegal. For example, if they die of a drug overdose, when driving while intoxicated or while committing a crime, the insurer probably won't pay out a death benefit.

6. Homicide

It may sound like the plot from a mystery novel, but if the beneficiary of a life insurance policy kills or hires someone to kill the policyholder, they can't receive a payout from the policy. This is known as the slayer statute. However, a secondary beneficiary or the policyholder's estate may receive the death benefit in this scenario.

If the beneficiary isn't responsible, they'll receive the death benefit as outlined in the policy.

7. High-Risk Activities

Insurers ask about hobbies and other lifestyle factors when you apply for coverage. You must disclose information about high-risk activities you regularly participate in, such as scuba diving, skydiving or hang gliding. Insurers may choose not to offer you coverage or charge a higher rate for the added risk.

The insurance company may deny a claim if the policyholder omits this information from their application and dies in an accident related to a high-risk activity.

How Do Life Insurance Payouts Work?

When you purchase life insurance, you pay a premium in exchange for a death benefit if you die while the policy is active. After your death, the beneficiary files a claim with the insurance company to receive a payout. Beneficiaries can use the money for whatever they want, including routine living expenses, college tuition, mortgage payments and more.

Depending on the insurer and type of policy you have, beneficiaries may be able to receive funds as a lump sum, in monthly installments for a certain number of years or as an annuity to receive lifetime benefits. Some companies may also allow your beneficiaries to put the funds into an interest-bearing account they can access as needed.

Learn more: How Do Life Insurance Payouts Work?

How to File a Life Insurance Claim

To receive the death benefit from the insurance company, you must file a claim. Here's how.

1. Get a certified copy of the death certificate. You may be able to get a copy from the funeral director, the health department or the department of vital records in the state where the policyholder died.
2. File a claim. Insurers generally require you to fill out a claim form and submit it with the death certificate. You typically need to include information about the policyholder, such as their name, Social Security number, policy number and cause of death. The insurer also needs your name, address, Social Security number, relationship to the policyholder and payout method.
3. Wait for the insurer to process the claim. Processing time can range from a few days to a few months. Carefully review all the information before submitting the claim to prevent errors that could result in delays

What to Do if Your Life Insurance Claim Is Denied

Insurance companies may deny a claim for multiple reasons. Beneficiaries who believe an insurer denied a life insurance claim in error can take the following steps to appeal the insurer's decision.

1. Review the denial. When an insurance company denies a claim, it must provide a reason. Read the information carefully to make sure you understand why the insurer is not providing a payout.
2. Prepare your case. Gather the necessary documentation to show why you believe the insurance company made a mistake. For example, if the insurer denied the claim for lack of payment, make a copy of the canceled check or online payment confirmation proving the payment was made.
3. File an appeal. Write a letter to the insurance company explaining your case. Provide as much detail as necessary to explain why you disagree. Submit the letter with the supporting evidence you gathered. It may take several weeks for the insurance company to review your appeal and respond.
4. File a complaint with the department of insurance. If the insurer denies your appeal, you may want to let the regulatory agency in your state know.
5. Consider working with an attorney. Insurance contracts and state laws can be complicated. A lawyer who is familiar with the complexities may improve your chance of filing a successful appeal.

Tip: You typically have a short period of time to appeal a denied claim. Act quickly to meet the insurer's deadline.

Frequently Asked Questions

Avoid Disqualified Life Insurance Payouts

The benefit from a life insurance policy can provide financial protection for your loved ones after your death. But only if they're eligible to receive a payout. Be sure you understand what your policy explicitly excludes and what scenarios may disqualify your beneficiary from receiving the death benefit.

Before shopping for coverage, you can check your FICO^® Score^Θ for free anytime at Experian. Insurers in most states may use credit-based insurance scores to help them determine your rate. People with higher scores may qualify for lower premiums and vice versa. If you don't have a strong credit profile, taking steps to improve it may help you save on your premium.