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Denial of life insurance claims is rare, but it can happen. Some initial denials are subsequently paid out by the insurer.

Some reasons for denial of claims:

  1. If the insurer suspects intentional/fraudulent misrepresentation in an application for coverage. Failure to disclose medical history is the most common cause of death benefit denials.
  2. If the premiums are not paid and coverage lapses.
  3. If the deceased dies during the commission of a crime.
  4. If the insurer suspects the deceased died as a result of suicide, within the first two years of coverage.

Two clauses in life insurance policies that may impact payout are: contestability and suicide.


Contestability Clause

Generally, insurers impose a two-year contestability period, during which they may contest a policy after it initially goes into effect. This is aimed at identifying and preventing fraud. The burden of proof is on insurers. They must have solid evidence of wrongdoing to deny a claim.

After the two-year contestability period passes, the insurer can no longer avoid payouts due to application misstatements, although some misrepresentations such as age could result in recalculation of coverage rather than outright denial or cancellation of coverage. For example, if I mistakenly indicate on my application that I am five years younger than my correct age, my death benefit may be recalculated as the amount of coverage my premiums could have realistically purchased if my correct age had been used. 


Suicide Clause

For private policies, if suicide occurs more than two years after initiation of coverage, the beneficiary should be eligible to receive the death benefit. In some states a one-year threshold applies instead of two years. Note that this two-year (or one-year) period is not the same as the contestability period, although the two do overlap. The burden is on the insurer to provide solid evidence that the death was the result of suicide as opposed to other causes. When coverage is denied due to suicide, the beneficiary usually receives a reimbursement of premiums paid on the policy.

Group policies offered and paid for by an employer generally don't impose a suicide clause.

If the insured fails to disclose conditions that ultimately lead to suicide even after the two-year period, the insurer may contest the payout and void the policy. It’s best to consult an attorney in such a case.


Related Links:

Policy Genius on Life Insurance and Suicide

Nerdwallet on Life Insurance and Suicide