Common Reasons Why Life Insurance Won’t Pay Out

Common Reasons Why Life Insurance Won’t Pay Out

- in Guides
Life Insurance Policy

There’s a world of difference between the criteria applied to turning would-be life insurance policyholder’s down due to their vocation and/or lifestyle choices and those who secure a far-reaching plan only to find at a later date – and in the aftermath of their passing – that dependants won’t receive a penny from the insurance product, as they willingly endangered their lives or placed themselves in grave danger. Typically the former people are routinely refused life insurance plans for a number of obvious reasons, including working in a role which is deemed ‘too risky’ (certain construction workers, oil rig employees, members of the armed forces, etc), those who admit to a penchant for adventure/extreme sports enjoyed in their leisure time (canyoning, base-jumping, parachuting, etc), those with a history of serious and ongoing health problems (high blood pressure, cancer, heart disease, etc) and those whose lifestyles present what’s seen as greater risks (heavy smokers and people seriously overweight). The latter on the other hand would have originally met with all the pre-qualifying requirements and stipulations only to then blatantly flout these (and others) consequently invalidate their entire life insurance policy agreement.

You see, despite the old adage, it’s not always a given that you get out what you put – or more importantly, pay – into life. As sometimes people breach the pre-agreed conditions of one thing or another which compromises the bond between two parties. Which we know sounds a bit vague, but please bear with us. A good simile of this would be if you were part of a work lottery syndicate which you financially contributed to week in, week out. But then say you left that employer only to find a couple of weeks later all the lotto numbers came up, yet you were excluded from claiming your stake as you had severed your ties with your former company and therein your syndicate membership. So effectively you’d invested a sizeable amount over a period of time but then when it mattered most, you discovered your entitlement had evaporated. Well there’s certain similarities between this hypothetical scenario and one reason why a life insurance policy might not pay-out in the event of a policyholder’s death, despite them debiting funds on a regular basis. That being, and not to labour the point too much, if they were found to be culpable in their own demise. Like for instance, if they had committed suicide. Having said that, if the policyholder chose to take their own life after the first 12 months of the policy being activated, then beneficiaries might well be able to stake their claim; providing there’s isn’t a case of non-disclosure with regards to the policyholder’s mental health at the underwriting stage.

What we’re trying to say is that like anything else in life, you should never take a life insurance policy paying-out for granted as there’s always a margin for error on the part of the policyholder; an unpredicted series of events which they (nor the insurance provider) could not have foreseen, yet which ultimately impacts on their dependants benefitting financially from the policyholder’s untimely departure. Away from the more serious count of being a pivotal accessory in their own death, there are various other ways in which you could hamper life insurance pay-outs being approved at the final hurdle, ranging from the less sublime to the not so ridiculous when you think about it. A dim view is taken by a life insurer if the policyholder is indirectly responsible for their own death by way of alcohol or drug misuse. Although it could be argued that they didn’t set out with a pre-meditated view to take their own life, there’s always the likelihood of abusing either drink or drugs to extremes could ultimately result in death by misadventure.

The same rule applies if a life insurance policyholder loses their life whilst actively involved in what’s described as an act of war or terrorism. By placing themselves knowingly in what is without question deemed as a hostile and dangerous environment they are by default risking their very existence, which contravenes every term and condition agreed and subsequently signed-up to as the crux of any life insurance package. Again, if the end game is death by gross negligence or reckless acts on the part of the policyholder, then life insurance companies will rarely compensate their survivors by way of triggering the release of funds accumulated over whatever period of time the deceased’s life insurance term was; as they will be implicated in their own demise whether the cause was intentional or otherwise just by confirmation of their actions/whereabouts at the time.

Less extreme measures of seeming deception or contravention of life insurance policies which lead to the same conclusive non pay-out stance adopted by the insurance provider includes someone failing to disclose a previous medical condition at the juncture of them arranging the plan. To avoid falling foul of this ruling it’s hugely important to reveal ANY health problems (however insignificant they might seem in the run of things) at the outset, so as to avoid the rug being pulled from underneath a future claim; especially when the underlying (yet undeclared) medical issue is cited as a cause of component in the subsequent death of the policyholder. Going back on your word – or as more commonly referred to in insurance-speak as ‘being dishonest’ in your answers at the applicative stage – can also be bandied in with this reasoning. As a point in question if you stated you were a non-smoker when the life insurance policy was underwritten and then 12 months later took up the smoking habit and eventually contracted lung cancer, then many insurers would immediately dispute the legality of the claim on said individual’s policy.

Meanwhile if the time which elapsed between a life insurance policy being taken out and the policyholder passing away is within a certain short term period then pay-outs won’t be forthcoming either, as it’s widely presumed that they must have had an inkling about their impending demise whether they actually did or not. Although this accepted passage of time differs between life insurance providers, it’s usually in the region of the first 6 months to 1 year, while for those that don’t officially stipulate a time-scale, policyholder’s claims could still be upheld if the insurer doesn’t believe sufficient time has lapsed between the two governing timelines as such.

Keeping up to date with life insurance premium payments can never be underestimated either, as there have been numerous instances whereby the survivors/named dependants/beneficiaries of policyholders have been denied access to funds due to the policy having lapsed in the intervening period, thanks to the policyholder not maintaining regular premium payments. Although there is generally a grace period (normally 30-days) before a life insurance policy completely lapses, the insurance provider are within their rights to cease paying benefits if the previously insured party dies and it’s found that their premiums were not paid on time. Exceptions to this rule include anyone who dies during this 30-day period, in which instance the premium will be deducted from the benefit paid.

Then we reach the realms of the perhaps less obvious and well documented reasons why your life insurer will point blank refuse to pay-out on a policy. Like for example if the beneficiary is under the age of 18-years, where instead the monies will be paid to a trustee who was previously designated by the insured party. And finally……it doesn’t always pay to live longer than you – or moreover – your life insurance policy provider initially expected. Far from being an exclusion as such, the fact of the matter remains that if you dot the all-important ‘i’s’ and cross the equally relevant ‘t’s’ on a fixed-term life insurance package and you die even 1 day after your policy has terminated, your loved ones would receive absolutely nothing by way of compensation for what would, arguably be classed as terrible timing. For this reason alone it makes sense to ensure that your life insurance policy doesn’t expire until such times as all your major financial commitments and biggest expenditures (mortgages, personal loans, children have grown up and flown the nest, etc) are due to come to a conclusion.