As lawyers who specialize in the wrongful denial of life insurance claims, we’ve seen just about every bogus reason life insurers use to deny valid claims from policy beneficiaries. Often, the reason given for a claim denial is just a ruse designed by an insurance company that is counting on the beneficiary to be too sad and too confused to contest the company’s decision.
Unfortunately, there are other cases where the life insurer has the legal right to deny the claim because the policyholder did something they shouldn’t have while they were alive. Those are some of the toughest situations we face because we hate to have to tell an innocent beneficiary that they have no legal recourse against the insurer. This is particularly true when the beneficiary really needed the policy payout in order to remain financially secure.
Consequently, we’re offering this article as a sort of cautionary tale for current life insurance policyholders. If you want to ensure that your loved ones are cared for when you die, please heed the suggestions in this article. It doesn’t mean a life insurance company won’t deny the claim made by your beneficiaries, but it does give us a fighting chance to get the money you intended for them.
#1: Lie in your life insurance policy application
In most cases, a life insurance company will not issue a policy unless and until the person seeking that policy fills out an extensive application. Typically, the application asks about things like prior medical conditions, habits (such as smoking or drinking), and hobbies (especially dangerous ones, like mountain climbing). Perhaps it’s just human nature, but people lie in these applications all the time. This is a very bad idea.
The reason for this is simple. A life insurance policy is simply a contract between the policyholder and the insurance company. As with all contracts, the law requires that the parties be truthful to each other during negotiations. If one party is not truthful, and that lie is a big enough deal that the other party wouldn’t have entered into the contract had he known the truth, the party who was lied to can avoid his obligations under the contract. A lie of this magnitude is known as a “material misrepresentation.”
In the life insurance context, this means that if you lie about something major in your application, the insurer might not have to pay your beneficiaries. Let’s say, for example, you denied being a smoker in your application but actually smoked a pack a day for 15 years. If the insurance company performs an investigation after your death (and they almost always do when someone dies within the first couple years after a policy is issued), they will find out about your smoking and they will refuse to pay your beneficiaries anything.
#2: Don’t pay your premiums
We all get in a financial jam from time to time. When that happens, we have to make hard decisions about which bills we will pay on time and which we will let languish for a month or two. In those situations, it is tempting to let your life insurance premiums go by the wayside simply because you’re not getting any benefit from those premiums at the moment.
Don’t bend to that temptation. While most states require life insurance companies to give you at least a thirty day grace period, after that the insurer can typically cancel your policy. That means that even if you’ve paid your premiums faithfully for 20 years but you miss a couple payments right before you die, the life insurance company may not have to pay a dime to your beneficiaries. Moreover, if you decide to make up your missed payments at a later date in order to have the policy reinstated, the insurer may require you to undergo an entirely new policy application. For most people, this means they have to reveal new medical conditions and pay a higher premium than they did before. It’s best to make your life insurance premium payments a strong financial priority.
#3: Die while on drugs
This is an issue our firm has seen more and more in recent years given the opioid epidemic in America. Most life insurance policies contain an illegal drug exclusion. While the specific language of these exclusions vary from policy to policy, they generally prohibit your beneficiaries from collecting on a claim if you die with illegal drugs in your system.
Keep in mind that the insurance companies are very strict about this exclusion. You don’t have to die of an overdose. You don’t even have to die from a street drug. If you die while taking a prescription medication that wasn’t prescribed to you, that’s probably enough for the insurance company to refuse to pay.
#4: Die doing something really dangerous
Many people don’t even realize that their life insurance policy contains what is often referred to as an “inherently dangerous activity” exclusion. As the name suggests, these exclusions relieve the insurance company from having to pay your beneficiaries if you die doing something unsafe. Many policies specifically define inherently dangerous activities to things like SCUBA diving, sky diving, or motorcycle racing. Other policies just flat-out prohibit risky behavior.
Indeed, we’ve seen cases where insurance companies invoked this exclusion where the policyholder died while driving at an excessive speed. In other cases, the exclusion was used to deny benefits when the insured was simply on vacation in a foreign land. In fact, when the policy doesn’t specifically define “inherently dangerous activities,” the insurance companies deem all sorts of things as “too dangerous” to warrant coverage.
Ultimately, life insurance policyholders need to be familiar with the restrictions of their particular policies. While no one likes to read insurance policies cover to cover, it can make a huge difference for those trying to protect their families.If you’ve had a life insurance claim denied based on one of these (or any) justifications. While we may not be able to help in instances of strict policy violations, we know that insurance companies often exploit these exclusions to their own gain. Call us today. We’re here to help.