When a senior executive or key employee passes away, the impact on a business can be immediate and severe. Revenue may drop, client relationships may suffer, and leadership gaps can stall operations. Corporate owned life insurance is designed to provide financial stability during exactly these moments.
Unfortunately, insurers frequently delay or deny corporate owned life insurance claims. These are often high dollar policies, and insurance companies scrutinize them aggressively, searching for technical defenses or application issues to avoid payment.
Understanding how these denials happen and how to respond can determine whether a company receives the capital it was promised or is left exposed during a critical transition.
What Is Corporate Owned Life Insurance?
Corporate owned life insurance, sometimes called key person insurance, is a policy purchased and owned by a business on the life of an individual whose death would materially impact the company. The business pays the premiums and is the beneficiary of the policy.
These policies are commonly used to insure:
• Founders and business partners
• Chief executive officers and senior leadership
• Top revenue producing employees
• Individuals required to be insured by investors or lenders
Example:
A private equity firm may require portfolio companies to carry life insurance on key executives as a condition of funding. Family owned businesses often insure founders to ensure liquidity and continuity if leadership is suddenly lost.
Why Corporate Owned Life Insurance Claims Are Denied
Although these policies resemble personal life insurance contracts, insurers often treat corporate claims differently once a death occurs. The most common denial justifications include the following.
Contestability Period Investigations
If the insured dies within the first two years of the policy, insurers have the right to investigate the original application. Corporate beneficiaries are often blindsided by how aggressively insurers review medical history.
Example:
A company lost its chief technology officer in a car accident eighteen months after policy issuance. The insurer examined years of medical records and denied the claim based on an alleged failure to disclose a minor heart murmur noted during a routine physical. Litigation ultimately forced payment of the full benefit.
Alleged Misrepresentation on the Application
Insurers frequently argue that even minor inaccuracies void coverage. These arguments often focus on medical disclosures the company itself had no role in completing.
Example:
After a cofounder died from cancer, an insurer denied the claim alleging he failed to disclose treatment for prior skin abnormalities. The business had relied on the completed application and had no reason to question it. The insurer refused payment until legal action was initiated.
Claimed Policy Violations
Some insurers argue that changes in employment status or internal restructuring invalidated the policy. Others claim premium payments were mishandled despite clear proof of consistent payment history.
These arguments are often technical and depend on narrow interpretations of policy language.
Policy Exclusions
Insurers may invoke exclusions related to suicide, substance use, or allegedly hazardous activities.
Example:
An executive died during a recreational expedition. The insurer cited an exclusion related to altitude exposure and refused to pay. The business challenged the insurer’s interpretation, but the dispute delayed payment for nearly a year.
How to Respond to a Denied Corporate Owned Life Insurance Claim
If your business receives a denial or unexplained delay, do not assume the insurer’s position is correct. Many corporate denials are reversed once challenged.
Review the Denial Letter Carefully
Demand a written explanation and identify exactly which policy provisions the insurer is relying on. Vague language and unsupported conclusions are common.
Gather All Policy Documentation
Collect the full policy, the original application, premium payment records, correspondence with the insurer, and internal documents related to the insured’s role within the company.
These materials are often critical in exposing weak denial arguments.
Involve a Life Insurance Attorney Early
Corporate life insurance disputes involve complex contract and insurance law issues. Counsel experienced with denied life insurance claims can often force quicker resolution.
Example:
A software company waited more than two months with no decision. After retaining counsel, the insurer released the full benefit within three weeks.
Legal Protections for Corporate Policyholders
Courts recognize that businesses rely on corporate owned life insurance to manage risk and maintain operational stability. Many states prohibit insurers from denying claims based on immaterial application issues or speculative connections between medical history and cause of death.
Example:
A manufacturing company was denied a two million dollar benefit based on an alleged failure to disclose childhood asthma. The insurer argued it was relevant because the death involved respiratory failure. The court rejected the argument, found the connection speculative, and ordered full payment with interest.
Final Thoughts
Corporate owned life insurance is purchased to protect a business during moments of loss and disruption. When insurers refuse to honor these policies, companies may face financial strain at the worst possible time.
Denied corporate claims are often defensible, but they require prompt action, careful review of policy language, and experienced legal guidance. If your business is facing a delay or denial, the outcome may depend on how quickly and strategically the claim is challenged.