When a top executive passes away, the impact on a business can be devastating. Clients may leave. Deals may stall. Morale may drop. That’s why many companies buy life insurance on their key personnel. This coverage, known as corporate owned life insurance, helps stabilize the company in a time of sudden loss. If you need a Missouri life insurance policy dispute attorney call us.
But what happens when the insurer refuses to pay?
It is surprisingly common for life insurance companies to delay or deny corporate owned claims, even when the policy was in place for years. These are high dollar claims, and insurers often conduct aggressive investigations or cite obscure contract terms to avoid payout. When this happens, companies are left exposed—without the capital they were promised and without the leader they just lost.
What Is Corporate Owned Life Insurance?
This type of policy is purchased by a company on the life of someone who is essential to operations. The business pays the premiums, owns the policy, and receives the death benefit. It is often used for:
Founders or partners
Chief executives or directors
Top sales or technical talent
Investors who require key person coverage
For example, a private equity firm may insist that its portfolio companies insure the lives of key management. Or a family business may insure the founder to ensure continuity and financial protection in case of an unexpected death.
Why Insurers Deny Corporate Owned Life Insurance Claims
Insurance companies may treat these policies like personal ones on paper, but when a claim is filed, the scrutiny can be intense. Here are the most common reasons these claims are denied:
The contest period
If the insured dies within the first two years of the policy, the insurer has the right to investigate everything in the application. One company lost its chief technology officer in a car crash just eighteen months after the policy was issued. The insurer delayed payment while combing through his medical records, eventually citing a missed detail about a minor heart murmur from a routine physical. They denied the claim outright. The company sued, and after six months of litigation, recovered the full amount.
Alleged misrepresentation
Even small errors in the application can be used to justify a denial. In one case, a tech firm lost a cofounder to cancer, and the insurer argued that he had not disclosed prior treatment for skin abnormalities. The firm had no knowledge of this, but because the coverage hinged on the original application, the insurer refused to pay.
Policy violations
If the business failed to update the policyholder’s status, such as a resignation or change in role, some insurers will argue that the original terms no longer apply. Others claim premiums were not paid properly, even when the company has proof of consistent payments.
Exclusions
Death from certain causes, such as suicide, substance use, or high risk activity, may be excluded. One energy company lost an executive during a recreational expedition. The insurer cited a clause excluding deaths that occur while climbing above a certain altitude. The family and company both disputed the interpretation, but the case dragged on for nearly a year.
How to Respond to a Denied Corporate Owned Life Insurance Claim
If your business has received a denial or an unexplained delay, do not assume the insurer is right. Denials can often be challenged, especially when the company relied in good faith on the policy.
Here are steps to take:
Review the denial letter
Demand a written explanation and review the language carefully. Many insurers use vague terms or point to issues that are not actually material to the claim.
Gather the policy and related documents
Collect the full application, all correspondence, premium payment history, and any communications about the insured person’s role. These details can make or break the case.
Contact a life insurance attorney
Corporate claims are complex. A lawyer who handles these cases can spot flaws in the insurer’s argument and push back. In many cases, just involving counsel leads to faster resolution.
For example, a software company’s claim was stalled for more than two months. Once they retained legal representation, the insurer paid within three weeks.
Legal Protections for Corporate Beneficiaries
Most states have laws that protect corporate policyholders from unfair claim denials. Courts recognize that businesses rely on these policies to manage risk and maintain continuity. If your insurer is denying a claim based on a technicality, these protections may allow you to recover the benefit in full.
In one dispute, a manufacturing firm was denied a two million dollar benefit because the executive had allegedly failed to disclose a childhood asthma diagnosis. The insurer claimed this was material because the death involved respiratory failure. The court disagreed, stating the connection was speculative and the company had no reason to question the application. The benefit was paid with interest.