It is no secret that the insurance industry does not have a good reputation when it comes to paying claims. But, it isn't very bad either!
The vast majority of life insurance policies provide a payout to their beneficiaries. This is exactly why Americans have a strong belief in life insurance. To quote stats, life insurance coverage in the United States reached a record high of $19.6 trillion by the end of 2018. In the same year, life insurance firms paid out more than $290 billion in rewards to policyholders.
However, there are individuals who ask, "If I get life insurance, can I be certain that my loved ones will receive the money? Others wonder, "Can I be confident that my loved ones will receive the money I intended for them?"
The answer is "yes" in the great majority of situations. Exceptions to this rule, as well as the reasons why life insurance firms deny claims, will be discussed in this article. We will also explore ways by which you can ensure your heirs get the benefits of your life insurance policy.
What is life insurance?
Life insurance, like any other kind of insurance, is about giving you an all-too-important sense of security. In addition, it should give you a sense of assurance that everything is going to be well no matter what life throws at you.
If you pass away, it will pay out a lump sum amount of money that is not subject to tax. It may seem a little gloomy, but it's really a very beneficial thing. It's there to give a financial safety net for the individuals you care about through a tough period.
Similar to life insurance, critical illness insurance pays a one-time lump sum of (tax-free) money if your diagnosis shows one of several serious illnesses. This ensures that, should you receive bad news about your health, you and your family will not have to worry about your finances.
Some consumers, however, are under the impression that insurance firms are always attempting to wiggle out of paying claims. It may be a terrible distraction from the fact that these insurances are really fantastic.
Does Life Insurance Actually Pay?
It seems that there is an inconsistency between what individuals think and what is really true. However, the truth is - that the insurance companies do payout in the great majority of situations if not all of them.
While your gears are working, we're wondering what happened to the other few per cent. In a nutshell, the most common cause for claims being denied is that consumers were dishonest in their insurance applications. But we'll get to it in!
Reasons Life Insurance Claims Are Denied
Life insurance claims can be denied for a variety of valid reasons. Let’s have a look at some of them:
Failure to pay premiums
This is the most common cause of claim rejection. Premiums (the money you pay to the insurance company in exchange for your coverage) are often not paid. People have a tendency to forget to make payments from time to time.
Others decide they don't need the coverage and discontinue their payments altogether. Sometimes they wish to pay but are unable to get the necessary funds.
Your insurance company may grant a "grace period" (usually 30 days) to policyholders who have fallen behind on their payments. After then, however, the coverage will lead to termination. They may come either with or without prior notification from the insurance provider.
Sometimes, heirs submit a claim on a life insurance policy on the life of a loved one who has passed away only to discover that their loved one had ceased making payments on the policy months or years before.
Undisclosed medical conditions
Failing to inform the insurance company of a health issue you are aware of can result in insurance claim denial. This is common with issues like high blood pressure or a smoking habit.
Even if the cause of death does not directly relate to the health issue you failed to report, there can be problems. It's critical that you answer all of the questions that the insurance company asks honestly.
When a person is protected by life insurance and dies by suicide within a certain period of time (typically 1 to 2 years after taking out the policy), the insurance company is not required to pay the claim, according to the suicide clause in most plans.
If the policy owner dies before the term expiration, the beneficiary receives just the amount of money that he put into the insurance policy. The insurance company will not pay the bigger death benefit that the policy owner intended to pay to his or her beneficiaries.
Unclear cause of death
The majority of plans have "exclusions," which are causes of death that your particular life insurance policy doesn't cover. Suicide is one example of this. An even more prevalent issue is that the insurance policy bought did not cover all possible causes of death.
An accident-related death and dismemberment (AD&D) policy pay a death benefit if the reason for death is an accident. However, it does not pay if the cause of death is a disease, a heart attack, or any other kind of medical emergency.
It is critical to understand the coverage you have to ensure that it corresponds to the coverage you want.
Life insurance plans often limit coverage for high-risk activities and hobbies like skydiving. If someone dies while engaging in criminal activity, the insurance company may refuse to pay the claim.
Furthermore, some plans will not cover you if you purchase them in the US but are residing outside the country. To determine whether any of these apply to your coverage, check with your insurance provider.
And don't forget to provide the names of your beneficiaries!
When you purchase life insurance, you are entering into a legal agreement. As with any contract, you should carefully study your insurance policy to ensure that you understand what it covers.
Make sure your beneficiaries are up-to-date to ensure that your loved ones get the insurance money.