Will my policy pay?

How to start saving money

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Why it is important to start saving

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How much money should I save?

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What percentege of my income should go to savings?

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It may seem like a question with an obvious answer. After all, you singed a contract with an insurance carrier stating a death claim will be paid to your beneficiaries when you die.

Of course they'll pay it, right? Well, not quite. That contract you signed comes with some exclusions and provisions if violated may give the insurer the right to deny the death claim on your policy. Here are some of the most common reasons that could be the case:

Common reasons insurers reject death claims

You forgot to pay - The most common reason claims are denied is failure to pay premiums. Sometimes clients really do forget to pay or stumble in to some financial hardships and cannot keep up with the premiums. In those cases carriers grant clients a "grace period", usually 30 days, to get caught up on their payments. After the grace period is up the policy will be cancelled. Best practice is to have the policy automatically deducted each month so you don't have to worry about missing payments. And if you ever get in a tight spot and can't afford the premiums, reach out to your insurance carrier to evaluate your options.

Your death wasn't covered - all life insurance contracts must state "exclusions" or types of deaths that are not covered by the policy. If your death falls into one of those categories the life insurance company can deny the claim. For example, an Accidental Death and Dismemberment policy only covers deaths due to an accident.

If you were to die from a non accident, natural death the policy claim would not be paid. Another example is death by suicide. Typically death via suicide is not covered until after the policy has been in force for at least two years. This period is known as the "contestability" period. The contestability period allows the insurer to review your application answers and make sure no material misrepresentation was made.

You left out some important information - If you don't answer the health questions honestly on a life insurance application, that is enough that the insurance company can deny the death claim. Even if your death is unrelated to the health issues you did not disclose your death claim could still be denied, even if the contestability is over.

Risky Hobbies - While it is uncommon for insurers to flat out deny coverage if you engage in high risk hobbies, like sky diving or base jumping, they will at the very least charge you a little extra premiums for taking on that risk.

Criminal Activity - On the other hand, if you were to die while engaging in illegal activity, the carrier would have grounds to deny the claim.

Acts of War Exclusion - This is an important note for anyone who lives or spends time in a place where armed conflict is taking place. The war exclusion originally only appeared in the policies of soldiers or military contractors, not private citizens. That has since been revised and now it is possible for deaths due to acts of war, invasions, rebellion, etc to be excluded from coverage.

Insurers usually pay their claims

Let's back up. Most life insurance policies pay out. I probably should have led with that. According to the insurance information institute, life insurance benefits and claims totaled $790.8 billion in 2021, up from $747.4 billion in 2020. That is a lot of claims. Insurers are not actively trying to deny death claims, but the majority of them are in business to make a profit. In order to do that they need to receive more in premiums each year than they pay out in claims.

The good news is the insurers are required to include what exclusions apply in their policy. Is the job of the advisor to make sure you understand those exclusions

Best practices

Make sure your advisor goes over the fine print of the policy with you. Ask follow up questions if are unsure.
Set your premium to auto draft from your account each month. Its just easier.
Be truthful on your application. It is better to pay a higher premium now than receive denied death claim later.
Call your carrier! Can't get a hold of your advisor? Call your carrier, they will have a fully loaded customer service department to answer any questions you may have about your policy.

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