"Should I be worried about my life insurance claim not being paid out?" It’s a question that crosses most minds when considering life insurance. You worry that your loved ones would need to fight to get their claim approved.

Rest assured, it’s extremely rare for life insurance companies to deny a death benefit.

But it’s not impossible. 

In this article, we’ll go over how to receive your death benefit seamlessly, how your loved ones can apply for a claim, why you shouldn’t worry about your life insurance not being paid out, and what to do in the unlikely chance you are denied. 

Let’s get started.

What You Need to Know

  • Death is hard to fake, which is why it is extremely likely that your claims won't be denied, no matter which life insurance provider you apply with 
  • All insurance companies are heavily regulated and hold billions of dollars in reserves. Even the smallest or most unknown companies will not run out of money to pay a claim
  • Reinsurance companies take on the burden of your policy on the off chance your provider goes out of business. 
  • Ling on your life insurance application or passing away doing an activity specifically outlined in your policy are some of the very few reasons your claim can be outright declined
  • The life insurance provider needs to provide a specific reason to deny your claim. If you find yourself in this situation, you can contest if you feel you were wrongly denied.

How Do You Claim a Death Benefit?

The first thing you want to do is contact your life insurance advisor if somebody passes away and you were a beneficiary of their life insurance. You will let your advisor or the insurance provider know they have passed away. From there, they will give you a list of documents you need and forms to fill out.

Here are some of the documents and forms you can expect to need or to fill out:

  • Proof of Death: When somebody passes away, a physician or coroner completes a certificate of death. his proof of death will be required to file a claim
  • Policy Information: Having as much policy information as possible is helpful when making a claim, but your loved ones can get away with just having your policy number. Your loved ones can also ask for this information from your life insurance advisor.
  • Claims Form: The claims form is also known as the “request for benefits.” In this form, they submit your name, policy number, and cause of death. They also declare their relationship to you and how they would like to receive the death benefit.

Once you gather all this information and share it with the life insurance provider, they will do some policy checks. This includes things like checking the policy is still active before putting the claim through. From there, your only job is to wait for the claim to be processed. You can answer any questions the life insurance provider may have along the way. 

There is no hard and fast rule on how long processing a claim takes.  Life insurance companies tend to try to pay out as soon as possible. You can expect it anywhere between a few days to upwards of 60 days, depending on your situation.

Photo of a man sitting with his laptop in a park talking on a cell phone for PolicyMe's article on life insurance and suicide

Should You Be Worried Your Life Insurance Claim Won’t Get Paid?

Short answer, no. If you’re honest on your application and pay your premiums, you’ll face no real issues when it comes time to make a claim.

The two main fears people have are that their claim will be outright declined or that the insurance company will go under and have no money to pay out. Both of these are extremely unlikely.

It's near impossible for life insurance companies to go under due to such a large amount of capital held at any time. Insurance companies are under government regulation and monitoring to hold sufficient capital reserves to cover the policies they've issued. This means they have enough in the bank to ensure your policy is safe.

In fact, according to the Canadian Life and Health Insurance Association, most life insurance providers have billions in assets at any given time. These life insurance companies, on average, hold 239% in assets compared to their liabilities. This means your life insurance policy claims are planned for and not a huge dent in life insurance company finances.

In PolicyMe's case, most of our policies are issued by Canadian Premier Life Insurance Company. They have been operating for more than 60 years in Canada, with over $300M in assets and $40M in claims paid (across all product lines) in 2020. Your life insurance with Canadian Premier and PolicyMe is backed by significant financial strength.

There are also reinsurance companies in place to protect your coverage even further, like RGA Canada. A reinsurance company is essentially insurance for insurance companies. Reinsurance companies take on part of the insurance risk a company has in exchange for a fee for each life insurance policy issued. Just like insurance companies, reinsurance companies are required by law to hold a minimum amount of assets to ensure they are able to pay claims – which can be upwards of billions of dollars in assets.

You're also still covered in the (extremely!) rare case of a life insurance company and reinsurance company going bankrupt. Another company (that also has billions in assets) will likely take over your policy. There are also organizations like Assuris, a Canadian non-profit that protects Canadian life insurance providers if their company fails. This means up to 85% of your policy is covered if it’s valued at over $200,000. For any policies under $200,000, Assuris covers you 100%.

But what about being declined, even if your insurance company has the money?

What Are the Reasons Life Insurance Won’t Pay Out?

Before diving in, let's emphasize once again that being declined for a death benefit is extremely uncommon.

In fact, most of the reasons you could be declined are easily avoidable.  Here are the only reasons a life insurance company will deny your claim. 

1. Intentional Misrepresentation

It is considered intentional misrepresentation if you withhold information or lie to get a more affordable premium during your application process. 

But what does intentional misrepresentation actually mean? Intentional misrepresentation is going out of your way to lie, not if you make a mistake on your application. If you claim not to be a smoker, for example, but your medical tests reveal years of smoking, that’s misrepresentation. 

There are a few outcomes if it is revealed you intentionally lied, like the smoking example. The best-case scenario is paying higher rates if this misrepresentation is revealed before you are approved. However, you can be outright declined. 

A policyholder may be declined payout if a claim is made and it's revealed they got approved by lying about their smoking status. 

2. Policyholder Passes Away During Contestability Period

A contestability period is a set timeframe. This is usually one to two years after your policy is put into place. If you pass away during your policy’s contestability period, the insurance company will likely reevaluate your whole application. This ensures you didn’t misrepresent yourself during the application process and protect the insurance companies from fraud.

They say honesty is the best policy, and this is especially true about your life insurance application. If you’re completely honest on your application and something does happen during this period. In that case, there is no reason to worry that your insurance agency looking into your health is a concern. They will know everything there is to know!

3. Death by Suicide in the First Two Years

This is the norm for life insurance policies. If you die by suicide within the first two years of your policy being in place, most policies will not pay out your death benefit. 

A life insurance policy does cover death by suicide if it happens after you have held the policy for over two years. 

4. Policy Lapsed Due to Missed Payment

Just like any other product, you need to make payments on life insurance to use it.

If you miss payments to your life insurance provider, your policy can lapse. This means the agreement between you and the life insurance agency is no longer valid. If something happens to you and you have missed payments, they can deny your death benefit.

Photo of a man sitting on a bean bag chair while using his computer for PolicyMe's article on life insurance and suicide

How Do I Prevent My Claims from Being Denied?

Now that you know why life insurance won’t pay out, you can easily understand what to do to avoid being in this situation. Here are the top things you can do to prevent your claim from being denied.

1. Be Honest

This one is pretty simple. If you’re honest with your life insurance provider throughout the application process, it makes it near impossible for them to deny your claim. 

The majority (of a tiny amount) of declines happen due to intentional misrepresentation. If you are as honest as possible about your health from the start, you know misrepresentation won’t be an issue. 

2. Understand Your Policy’s Exclusions

Every life insurance policy has exclusions. For the most part, it’s just death by suicide within the first two years. But life insurance is a pretty personal product.

Make sure you fully know the exclusions on your policy to avoid this, not just the exclusions you’ve heard of. Each policy is unique. For example, if you're a professional skydiver, your policy may have an exclusion for death in a skydiving accident.

When you know what your exclusions are, you know what actions will prevent you from receiving a claim. You’ll also know for sure if you’re eligible for the death benefit, minimizing chances of disappointment.

3. Make Your Payments

When you stay up to date on payments, you don’t need to worry about your policy lapsing when you need it most. 

If you miss one payment by mistake, don’t panic! This doesn’t mean your insurance policy is entirely void and you need to restart the application process. Most life insurance companies have a 30 day grace period. If you miss a payment, the company will let you know and allow you to make it up in that window. You can even opt for a double payment at your next premium due date.

In the case you go beyond the 30-day mark and don’t make the next payment, you no longer have coverage. If years haven't passed, however, you can go back to your life insurance provider to get your policy reinstated. They will ask a few questions to confirm your health is relatively unchanged. Once you pay your premiums for missed months, your coverage will be reinstated.

assortment of credit cards in pants pocket

What Do I Do If My Claim is Denied?

If you are denied, you should be provided with a very clear reason. As outlined earlier, the reasons your claim would be denied are pretty evident. The insurance company needs to share the exact reason your claim is denied with you.

Once you know the reason you were denied, you can contest it. There are tons of lawyers who can help you with this process. They will put together a case as to why your claim shouldn’t be denied. Depending on their rates, it may be worth it if they are confident they can get you the benefit. 

If you’re unsure about your case and reaching out to a lawyer, feel free to contact us for free advice. We’ll try to help where we can!

Don’t Worry About Reasons Life Insurance Won’t Pay Out

Of course, cases exist where life insurance claims are denied. But they are few and far between – if you are honest on your application, you have nothing to worry about.

Laura McKay

COO & Co-Founder

Laura brings 7 years of experience working in insurance & strategic operations as a management consultant at Oliver Wyman, after experiences at Manulife and Munich Re. In 2017, she launched a successful initiative for the World Economic Forum focused on innovation in insurance, working closely with insurers, tech pioneers, and policy-makers.

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