Here Are 10 Reasons Insurance Won’t Pay Out

Some reasons life insurance won't pay out include the insured's cause of death, not paying premiums, lying on your application, and more. In addition, life insurance companies may not pay out for insured individuals that die by suicide, due to criminal activities, or from participating in risky activities. Knowing the reasons life insurance won't pay out is essential to making sure your family receives the death benefit you've paid for.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Written by Rachael Brennan
Licensed Insurance Agent Rachael Brennan

Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent Benji Carr

UPDATED: Jun 29, 2022

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Quick Facts

  • Some of the most common reasons life insurance won’t pay out are because the insured individual dies in a way that is excluded from the life insurance policy or dies during the contestability period
  • Other reasons life insurance won’t disburse include not paying your premiums, not correctly listing beneficiaries, lying on your application, and more
  • If the life insurance company denies your claim, you can seek help from your state’s insurance department, attorney general, and an attorney to appeal the decision

Even though life insurance is meant to offer financial protection to your family and loved ones after you pass, there are several reasons life insurance won’t pay out.

Understanding what disqualifies a life insurance payment is essential to ensure that you don’t make a mistake that could cost your family financial security. Read more below about 10 reasons life insurance won’t pay out.

If you need help finding affordable life insurance rates, enter your ZIP code into our free quote comparison tool above to quickly obtain life insurance quotes.

10 Reasons Life Insurance Won’t Pay Out

So, what are reasons life insurance won’t pay out? Below are 10 reasons why your life insurance company may deny your claim.

1. The insured died by suicide.

Some states and life insurance companies have a suicide clause in the policy that excludes specific reasons for death where the insurance company won’t pay out.

A suicide clause may only state a specified time where the policyholder cannot die by suicide. However, if the policyholder were to die by suicide after the specified time, the life insurance company would still pay the death benefit. This period could be between one and two years.

2. The policyholder lied or withheld information on the application.

If you are not entirely truthful on your life insurance application, you may find that the life insurance company will cancel your policy, deny claims, or raise your premiums.

Each life insurance policy has a contestability period (often two years) in which the company will investigate all deaths that occur within that period. If the company finds that you provided false information or withheld information during an investigation, they may not pay the death benefit.

Suppose the insurance company discovers that you lied or withheld information either during the application process or after you have purchased the policy. In that case, they may cancel or deny your policy or raise your premiums.

In some severe cases, they may even deem your actions fraudulent.

3. The policyholder stops paying the premiums.

If the policyholder ceases paying the premiums, the life insurance policy could lapse. Many companies will have a grace period for paying your premiums; however, if you wait too long, the company could cancel your policy and refuse to pay the death benefit.

4. The insured died from risky behavior or activities.

Life insurance companies recognize that some people like to take part in dangerous activities, such as skydiving. However, they also realize that these activities put the policyholder at higher risk and hence the insurance company.

If you participate in riskier hobbies or activities, you may be considered a high-risk individual for life insurance and should be up-front about it when you apply for life insurance. If you don’t tell the insurance company about it and pass away because of the activity, the company may deny the claim.

5. The insured died due to criminal activities.

If the policyholder dies while committing a crime or participating in illegal activities, the life insurance company could deny the claim. The company could also deny your claim if you die while unknowingly committing a crime, such as being unaware that you’re trespassing on private property.

6. The insured dies by an act of war.

If your life insurance policy contains an “Act of War” clause, the company will likely not cover civilians who are killed due to war activities. For example, a journalist who travels to a conflict location will probably not get a payout if they die due to the dispute.

7. The insured moves outside of the country.

If you purchase a life insurance policy while living in the United States and then move outside of the country, the life insurance company may not pay your beneficiary if you die while living outside the United States.

8. The policyholder has no insurable interest.

When someone takes out an insurance policy on another person’s life, they must demonstrate insurable interest. The insurance company must also receive consent from the insured individual to issue the policy.

Insurable interest means that you have a financial dependence on the person or would otherwise suffer financial hardship if that person dies. For example:

  • The spouse of the insured person who depends on their income
  • The children of the insured person who live at home
  • A business partner

If the insurance company issues a policy without insurable interest and then discovers the lack of insurable interest after the insured’s death, the company can still deny the claim by voiding the policy. The person taking out the policy may face fraud charges.

9. The beneficiaries don’t know about the policy.

Suppose your beneficiaries are unaware of the policy. In that case, it doesn’t necessarily mean that the insurance company won’t pay out, but it does make the process more complex, and it could take years for your beneficiary to receive the death benefit.

Life insurance companies typically attempt to keep track of the deaths of policyholders and track down the beneficiaries, but they may not do this very often.

10. Your ex-spouse was not removed as the beneficiary.

In some states, your ex-spouse may be automatically revoked as a possible beneficiary of your life insurance.

These states typically require that the spouse is removed as beneficiary after a divorce. If you intend to keep them as the beneficiary, you must notify the life insurance company. If you don’t, they may deny your ex-spouse’s payout.

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What should I do if my life insurance claim is denied?

What percentage of life insurance claims are denied? Only a tiny percentage of life insurance claims are declined, but the insurance company will dispute or investigate a more significant number of them.

If your life insurance claim is denied, and you do not feel that the insurance company has a strong enough reason to refuse it, you have rights. In that case, you can begin by contacting the life insurance company to get a full report or an in-depth explanation about why the claim was rejected.

You can then contact your state’s insurance department and the attorney general to learn more about the appeals process and how to contest the claim’s denial. Employees at these offices should have experience with appeals and be able to offer helpful insight.

If you decide to move forward with the appeals process, you should hire an attorney who specializes in insurance settlements and appeals.

If you need help finding life insurance that meets your needs, enter your ZIP code into our free quote comparison tool below to find a life insurance company in your area.

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