Life Insurance Claim Denials: Can They Happen After the Two-Year Contestability Period?
Among the many myths and mysteries circulating about life insurance claim denials are two myths with exceptional staying power. One falsehood is that insurance companies will not pay benefits if the policyholder committed suicide. The other is that if a policyholder dies soon after purchasing life insurance, the company will not pay benefits.
These are persistent myths because they are based in fact. And, as insurance companies create more and more individualized policies, there is no longer a standardized answer to when insurance companies will pay a life insurance claim.
The facts are that life insurance claims are usually paid even when suicide is the cause of death and the majority of claims are paid even when the death occurs close in time to the purchase of the insurance.
It is also true, however, that the shorter the length of time between the issue date of insurance coverage and the death of the insured, the more likely it is that the insurance company will contest, deny or delay coverage. This is true regardless of the cause of death.
Incontestability Clauses Make It Hard For Companies to Deny Life Insurance Claims
Life insurance policies contain something called an “incontestability clause.” This clause states that after the end of the contestability period, which is almost always two years starting on the issue date of the coverage, the insurance company cannot deny the claim unless the policyholder committed deliberate fraud to obtain the policy. If certain causes of death are specifically excluded from coverage (such as driving while intoxicated), the incontestability clause does not apply to them.
Suicide is Usually an Excluded Cause of Death Only for the First Two Years
Most life insurance policies contain a suicide clause that allows a life insurance claim to be denied if the cause of death is suicide. However, most suicide clauses only apply for the first two years after the insurance issue date. After that time period, suicide is generally covered.
Can a Life Insurance Claim Be Denied if the Policy Has Been in Effect for at Least Two Years?
Most life insurance claims will not be denied after the two-year contestability and suicide clauses have ended. The incontestability clause exists to provide a clear deadline by which the insurance company must address any concerns it has about the validity of the policy. Concerns might include whether the policyholder lied about his or her physical or mental health, dangerous hobbies, hazardous occupation, age or other material facts in order to obtain the policy.
Some states have specific rules about whether a company can outright deny the insurance claim during the incontestability period. For example, in some states, if a policyholder misstated his age, rather than denying the coverage, the death benefits would be adjusted to reflect the insured’s actual age and the premiums that should have been paid.
If an insurance company voids a life insurance policy during the contestability period, the company generally refunds the premiums.
People who receive a claim denial for a life insurance policy that is at least two years old should seek legal advice. Insurance attorney Chad G. Boonswang has helped life insurance beneficiaries across the country receive the benefits to which they were entitled. Call him today at 1-855-865-4335 to find out how he can help you.by