9 Ways Life Insurance Will Not Pay Out
Last updated: March 28th, 2023
Reviewed by
Grant Desselle
Licensed Insurance Agent
Table of Contents
1. Suicide
A common circumstance in which a life insurance policy will not pay out is in the case of suicide. Depending on what state you live in, there could be a suicide clause in your policy. If there is such a clause, and if you were to commit suicide within the specified time frame, your beneficiary would only get the premiums back, not the death benefit.
This suicide clause is an incontestability clause, a window of time during which the insurance company can investigate and deny claims. The period is usually one to two years in most states, and it begins as soon as the insurance policy goes into effect.
The clause protects life insurance companies from people who would take out a large policy and then commit suicide for the “betterment” of their family’s financial situation. The thought of doing something like that might seem bizarre to most people, but before the incontestability “suicide clause” went into effect it occurred more often than you might think.
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2. Withholding Information On The Application
The insurance company is going to investigate the cause of your death when a claim arises within the first 2 years of the date of issue. You can be sure of that. The first 2 years are called the contestability period.
It will look at the events that led to your death and compare them against your original application. If the company finds that you were less than forthright, or if you somehow forgot to mention that you have a health condition or you were involved in dangerous activities all the way back to the time you applied for coverage and you didn’t mention them, it can deny payment on the claim.
In order for a life insurance company to deny a claim, the misrepresented information must be considered “material”.
Information is a “material representation” if it would have caused the insurer to change the terms of the policy with different premiums, or have been unwilling to issue it in the first place.
If an investigation finds you misrepresented facts on your application, the insurer has a couple of options.
- It can figure out how much premium you should have been paying based on the new facts and reduce the death benefit by that amount.
- Or the insurance company can deny the claim.
How the situation is handled depends on the state laws, the size of the claim, and the severity of the misrepresentation.
Each state has its own laws about the incontestability clause, so a claim could be denied due to a material misrepresentation whether there was intent to deceive or not. In most states, a policy can be voided even if the material misrepresentation has no connection with the cause of death.
In Nationwide v. Nelson, the insured had been convicted of a felony but answered the question on the application that he had not. The defendant insisted that it was not a deliberate attempt to mislead the insurer, but the court ruled that intentional misrepresentation is not required to void the policy.
In Meadlock v. American Family Life Assurance Company of Columbus, the insured failed to disclose heart issues on the application and subsequently died of ventricular fibrillation. The insurer refused to pay, citing material misrepresentations.
3. Dangerous Activities
You may have heard of professional athletes having a certain clause in their contract that does not allow them to participate in what are considered dangerous activities. That could be something fairly obvious, like skydiving, or even something far more common, such as riding a motorcycle.
The same applies to a life insurance policy. Think about it. Life insurance is all about risk management. If you are jumping out of an airplane with a parachute (that may or may not work) on your back, you’re a higher-risk applicant than someone who doesn’t engage in that kind of activity. It’s best to be honest about your risky hobbies or lifestyle when asked. If you are actively involved in one of the dangerous activities listed on the application, you can still do it, but you will need to pay to be protected.
4. Illegal Activities
This goes back to that earlier statement about common sense. If you die while committing a crime or participating in an illegal activity, the life insurance company can refuse to make a payment. For example, if you are killed while stealing a car, your beneficiary won’t be paid.
Okay. That one’s fairly obvious. But this next point might surprise you. What if you’re doing something illegal and you don’t even realize it? Maybe you’re walking on private property. Trespassing is a crime — even if you don’t know you’re trespassing. Let’s say you’re being chased by a big dog, and you have a heart attack and die. If it turns out that you were trespassing, your claim could be denied.
5. Act of War
Some life insurance policies have an Act of War exclusion. It’s not designed to exclude soldiers. Rather, it’s in place to deny claims for civilians who are killed in wars or by acts of war, such as journalists whose job takes them into the midst of battle on a regular basis, or people who travel to regions of the world where there’s armed conflict.
6. Living Outside of the United States
Here’s one you may not have considered. Let’s say you take out a life insurance policy while you’re living in the United States, and then you move to another country.
There could be a clause in the policy that excludes the payment of a death benefit if you are not living in the U.S. at the time of your death. Be sure to look for any mention of this in your contract, especially if you see yourself leaving the U.S. in the near future.
7. Fraud
When a death claim occurs after the 2 year contestability period, the insurance company must prove fraud to deny a claim.
Insurance fraud is a “specific” intent crime. This means the prosecutor must prove that the person involved knowingly committed an act to defraud.
Life insurance is a type of contract, and with all contracts, fraud can void the entire agreement.
If you provide material misrepresentations with the intent to defraud or to facilitate fraud, you may also be guilty of insurance fraud, which is a crime.
8. No Insurable Interest
In the field of personal insurance, one is held to have an unlimited interest in one’s own life. “Insurable interest” must exist at the time of the contract. Continued insurable interest, however, need not be demonstrated. A divorced woman may continue life insurance on the life of her former husband and legitimately collect the proceeds upon his death even though she is no longer his wife.
For someone to purchase an insurance policy on your life and be considered the beneficiary (making them beneficiary-owner), they must be able to demonstrate an insurable interest. Do note that even with an insurable interest, anyone who wants to insure your life would also require your consent before a policy could be issued. There are some exceptions, such as a parent buying coverage for a minor child.
Insurable interest examples:
1. In the case of individuals related closely by blood or by law, a substantial interest is engendered by love and affection.
2. In the case of other persons, a lawful and substantial economic interest in having the life, health or bodily safety of the individual insured continue, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the individual insured.
3. An individual party to a contract or option for the purchase or sale of an interest in a business partnership or firm, or of shares of stock of a closed corporation or of an interest in the shares, has an insurable interest in the life of each individual party to the contract and for the purposes of the contract only, in addition to any insurable interest which may otherwise exist as to the life of the individual.
4. A charitable organization as provided in section 501(c)(3) of the internal revenue code, which has a policy ownership interest has an insurable interest in the life of each proposed insured who joins with the charitable organization in applying for a life insurance policy naming the charitable organization as owner and irrevocable beneficiary.
If a life insurance policy lacks an insurable interest at inception, it is voidable It, therefore, follows that if no insurance policy ever legally came into effect, then neither did any of its provisions, including the statutorily required incontestability clause. The incontestable clause is no less a part of the contract than any other provision of it. As a result, the incontestability provision does not bar an insurer from asserting a claim on the basis of a lack of insurable interest after the incontestability period expires.2
9. Policy Replacement
If you do replace existing coverage, the new policy may contain new suicide and contestable periods. The following would be considered replacement: you stop paying premiums on an existing policy or surrender an existing policy before or shortly after applying to us or you borrow from an existing policy to pay premiums for the insurance for which you are applying. State law may define replacement to include other situations.
Read the fine print and get insured with confidence
By no means is this a comprehensive list of reasons life insurance won’t pay. These are, however, some of the more common instances.
Bottom line? Be completely honest, and don’t ignore the fine print on your life insurance policy. You don’t want to be responsible for losing the benefits of that policy because you “didn’t know” or because you thought you could get away with something by not being 100% truthful. The best advice is to be sure to read your entire insurance contract — including and especially the fine print — before you sign it.
If you’re unsure of anything, just ask. That’s what our claims specialist is for, to guide and direct you to the insurance policy that’s best for you. They will read the fine print with you and help you understand what it all means, especially as it pertains to your particular situation.
To talk with our experienced Life Insurance Lawyer, contact our preferred life insurance claims specialist.
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FAQ’s
Reasons life insurance won’t payout?
- Suicide
- Smoking, or another health-related issue
- Dangerous activities
- Illegal activities
- Act of war
- Living outside of the United States
- Fraud
- No Insurable Interest
- Replacement
Does life insurance pay for suicidal death?
Depending on what state you live in, there could be a suicide clause in your policy. If there is such a clause, and if you were to commit suicide within the specified time frame, your beneficiary would only get the premiums back, not the death benefit.
This suicide clause is an incontestability clause, a window of time during which the insurance company can investigate and deny claims. The period is usually one to two years in most states, and it begins as soon as the insurance policy goes into effect.
How long do you have to have life insurance before you die?
It depends. If it is a term, universal or whole life policy it is same-day coverage once it is in force. If it is a guaranteed issue policy, it can be up to 2 years.
References
- http://www.insurance.ca.gov/01-consumers/105-type/95-guides/15-gen/insur-fraud-is-felony.cfm
- https://www.opic.texas.gov/life-insurance/rights/
- https://content.naic.org/sites/default/files/inline-files/JIR-ZA-34-03-EL.pdf
- https://www.supremecourt.gov/DocketPDF/18/18-7709/86616/20190205152949620_00000012.pdf
- https://courts.delaware.gov/opinions/download.aspx?ID=160700
- https://casetext.com/case/meadlock-v-am-family-life-assurance-co-of-columbus
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Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
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Grant's past experience includes work as a licensed sales agent for Hagerty Insurance. He has reviewed thousands of existing auto policies across the nation and issued hundreds of new ones on everything ranging from classic cars undergoing restoration to modern exotics and motorcycles.
The provisions of the whole life insurance policy and universal life policy will pay the death benefits even if applicant lies on the application but only if the death occurred after how many years?
Potentially. However, some insurance companies may review documentation surrounding the death to see if there is a policy exclusion or situation that allows them to not pay the death benefit. This isn’t an overly common occurrence but it can happen. For instance, if someone dies from skydiving and the policy states it is an excluded activity, they are not obligated to pay. If the company feels something isn’t right, they will not hesitate to investigate.
Your question is a major reason why we advocate for complete honesty when applying for life insurance. Lying on a life insurance application to save a few dollars can create an adverse situation upon death that can be a nightmare for your survivors. It is also important to keep in mind that many of the WL and UL policies with larger death benefits are traditionally underwritten, meaning there is a medical exam required to help minimize the amount of risk the company takes on and to keep the company from insuring someone incorrectly.
-Luke
Hi! My father passed recently. He has 2 policies and the funeral home contacted the insurance company. The insurance company is contesting the policies as they have been active less than 2 yrs. The funeral home does not accept contested policies for payment so my family has the burden of paying his funeral expenses. We are not prepared! My father has been applying for, paying on and cancelling policies for the past few years. Can we file claims to get refunds of premiums on these policies to recoup some of the funeral costs? I don’t think any of the policies are term life. I was only able to identify companies by checking my fathers bank statements.
Can clerical errors by insurance agent void a policy?
Anyone reading this please put your policies in a secure location and tell a trusted family member where they are. The only reason I knew of some of my father’s insurance is that I could access his bank records. I have found some policies after an exhaustive search. Your loved ones have enough to deal w/ sadness/shock of your death, funeral arrangements, your property. If you have been responsible and eased their burden by having active insurance, for the love of all that is holy secure them and tell someone where they are!
Hi Tiffany!
I’m sorry to hear about the struggle you are having regarding your father’s policies and I know it can be a struggle dealing with end of life preparations. Let me try to help you understand some of what is going on:
“The insurance company is contesting the policies as they have been active less than 2 yrs”
In this situation, you may be looking at either a graded benefit or an excluded cause of death. For example, death by suicide generally carries a 2 year non coverage in most states. Other policies may say other causes of death may not be covered for X amount of years. It depends on the policy itself. If we are dealing with a graded benefit, that policy may not cover anything health related for the first 2 years but may issue a refund (and sometimes with interest) in the event death was from natural causes. Most graded benefit policies will cover accidental death up to the full face amount. Without seeing the exact policy, it is hard to give an absolute.
“Can we file claims to get refunds of premiums on these policies to recoup some of the funeral costs?”
If there are provisions in the policy that allow for this, then you would want to follow up with the company. Some companies are better than others when honoring their obligations (especially dealing with refunds of premium) and in some cases I have heard beneficiaries complain about the amount of time it takes to get the refund in premiums. One company in particular has numerous complaints against them for taking up to 2 years to refund premiums that they were obligated to refund. This is why it is key to use companies that have demonstrated a high level of customer satisfaction and to do your research before purchasing a policy.
“Can clerical errors by insurance agent void a policy?”
Not likely. Insurance agents compile the information to be sent to the company and the underwriters are the ones who confirm and verify the information. Usually any clerical errors are caught and remedied early on in the process. Rarely does a policy written become voided based on an agent’s error, unless there is a issue of illegality involved.
It is always important to make sure your important documents are safe and secure. In this technologically advanced era, even scanning and saving documents on flash drives or in the cloud can help minimize the hassle for loved ones in the event of your death.
Hope this helped!
-Luke
I have life insurance through my employer. My husband died in December of 2015. Dependents and spouses were covered at $2000 which I wasn’t even aware of. With my husband’s death, I was in a total fog and never even checked into coverage at work. When benefit enrollment opened again in December 2017 and I was on Medicare I logged in to cancel BCBS and saw I had been entitled to $2000 at the time of my husband’s death. I contacted HR and she said apologized and said she should have told me about it but will be reaching out to the broker and see if it could still be paid. They have a difference insurance company now. I never heard back and forgot about it until last week when I had to search benefits again and I saw the email I had sent to her. She once again apologized and said it fell off her radar and she would be looking into it now. Is it possible to collect this late? I don’t want to make any problems for the HR person as I believe it was an honest error, at the same time $2000 would certainly help me financially. Are there time deadlines to collecting? Thanks
Hi Barbara!
I am sorry to hear about the recent back and forth regarding your husband’s life insurance policy. To answer your questions, the policy should payout regardless because there isn’t a technical time limit for filing claims. Request that the HR person pull a copy of the actual policy and read over it to see what the details of the contract are regarding this issue. I would encourage you to work with HR to get the payout and if they give you a hard time about it, then I would discuss your concerns with a lawyer or the Department of Insurance in your state.
For more reading on this, look at this link: https://life-insurance-law.com/statute-of-limitations-for-filing-a-life-insurance-claim/
I hope this helps some.
-Luke
My mother passed away on April 30th. She had a term life insurance policy since 1999 with AIG which turned into AGLI. We went to the funeral home with all of the information but since she didn’t name a beneficiary all of us 4 daughters had to fill out forms. We did this and the funeral home sent it with return receipt. They received it on May 22nd. Then they tell the funeral home they need someone that knew all of us girls all of our life to fill out a form and it had to be notorized. We took care of this and they told the funeral home once they received it, it would take about 10 days for the payout which will pay the funeral home then the rest split up by 4 and sent to each of us. Yesterday was the 10th day since the received the final paper they needed. The funeral home calls them and they say it is still in review and now they say it could take another 2 to 4 weeks to pay out. This is unacceptable when a loved one pays so you don’t have a burden and yet it has been almost 2 months since her death and we are still fighting AGLI.
Tammy-
I am so sorry to hear about your experience with AIG and the recent passing of your mother.
The issue you relay is one that is more common than it should be. One thing I like to remind clients periodically about is reviewing any life insurance policies they may have to prevent issues such as this. When situations like this arise, it can be lengthy and emotionally draining if the proper paperwork isn’t correct.
If you feel the company isn’t stalling on their payment, you could contact the Department of Insurance in your state or discuss the matter with an attorney who is familiar with life insurance law to get their recommendations on the next best course of action.
I hope this helps a little.
Best regards,
Luke
Hi Luke.
My mother recently passed in June and her and my father had a term life insurance policy they had been paying for almost 20 years. She got really sick in January and it simply slipped their minds to continue paying at the time as she was in and out of the hospital. My father called the life insurance to request it be re-instated if he did the back payments. They refused. Is there nothing else we could do even with hospital paperwork or anything?
Thanks!
Hi Matthew!
I am sorry to hear about your recent loss.
Sadly, at this point, there may not be much that can be done. Generally, life insurance companies can’t cancel a life insurance policy unless it is for non-payment. The company will often send notifications via mail (usually) if a policy is on the verge of lapsing and encourage you to keep the policy active by making a payment before a certain date. After it goes past that date, the policy is considered lapsed and the company is no longer obligated to provide the coverage.
If you feel there has been a technical error of some sort, then discussing this issue with an attorney who is versed in your state’s insurance law may be a good course of action. There may be something in the state law that may help you out.
If this policy was canceled for any other reason, then I would say you may have some level of recourse; however, a term policy lapsing for non-payment is extremely common and rarely retroactively placed back into force, especially after the death of the insured.
Hope this helps a little.
-Luke
I took out a life insurance plucky on my husband when he became terminally ill. Explained all about his heath and was honest. When he passed I was two days shy of it being two years. They would not pay ! They have no heart. That’s just wrong.
Hi Pam!
I’m sorry to hear about your husband and I totally understand your concerns.
Without seeing the actual policy, I can’t comment on it specifically. Based on what you are stating, this sounds like it may have been a guaranteed issue type of policy with what’s called a “graded benefit”, meaning that there is no coverage for death due to medical/ natural causes (only accidental) for the first 2-3 years, depending on the policy. This lack of coverage during the graded time period should have been explained by the agent who wrote the policy.
Because policies like this don’t have underwriting attached to them to limit risk, life insurance companies create the “graded benefit” period to act as a buffer to prevent paying out for death benefits that may have been avoided with some level of underwriting in a more standard type of policy application. This type of coverage is very common, especially in the senior market, and most people are fine with it as long as it is explained properly by the agent.
-Luke
What if the death occures after paying premiums for two years and the Arizona ME rules it a suicide?
Hi Sean!
In this situation, it should be covered depending on the state the policy was issued in; however, we are not lawyers and I encourage you to speak to one if you needed more insight on the law https://law.justia.com/codes/arizona/2012/title20/section20-1226/.
Ultimately, it depends on what it states in the policy based on the laws of the state jurisdiction it was written in.
-Luke
Hi Luke, My dad has dementia he missed May June July 2018 payments, will they work with us? Or is it 30 days to bad? Once a policy gets canceled is it gone for good?
Hi Mike!
I would reach out to them and explain the situation. They may be willing to do something as long as the arrears are paid up, but that is dependent on them and the state law that governs the insurance policy.
If they do, I would make sure that someone in the family takes point on this issue and makes sure the premiums are paid. Depending on the policy and premium, paying it on a yearly basis may help prevent accidents like this from happening in the future as it is only something you have to remember to pay once a year.
Best of luck!
-Luke
I have had a good life insurance policy with my employer for 9 years. However, the company I work for has changed contracted life insurance companies several times. Each time during the open enrollment period I go through the process to get the higher level of coverage. My question, does the incontestability time period restart with each change to a new insurance company? I other words, even though I have been covered through my employer for 9 years, if I died today would the insurance not pay out due to it being a different insurance company starting 1/1/2018 that my employer used?
Hi Rich!
You are definitely asking a good question. You may be overthinking this a little though.
If I understand it correctly, your company jumps to other insurance carriers for their group life policies periodically. This is not uncommon, depending on the rate changes in the market place.
First, contestability isn’t a period of non coverage, instead it is a window of time that the insurance company has to challenge the validity of the contract based on the info provided in the application. If you are a smoker, but tell them you are a non-smoker on the application, you may run into issues in getting the full death benefit covered if the insurance company finds out there was misrepresentation in the application.
“if I died today would the insurance not pay out due to it being a different insurance company starting 1/1/2018 that my employer used?”
I think this may be part of the confusion. In this situation, the life insurance company responsible for paying out is the one you are covered under on the date of your death. During open enrollment, you may elect new coverages but they usually won’t take effect until a later date. (Most companies have an October open enrollment period for the employees to choose their coverages that will then take effect on 1/1 of the following year.)
In this example, Company A provides life insurance coverage for 1/1/2018 to 12/31/2018 and Company B provides coverage for 1/1/2019 to 12/31/2019. If you die on 2/13/2019, Company B will be responsible for the coverage and will not care anything about previous coverage from Company A.
This is one of the reason why group life insurance should be considered only a “perk” and not your main source of protection. If you obtain your own individual policy that you have full control over, you never have to worry about changes your employer makes to the group policy and have ultimate say over the amount of protection you carry.
Hope this helps a little!
-Luke
My grandmother has been very sick since Christmas. She has lung cancer, never smoked. She received a cancellation notice from AIG dated July 13, 2018 staying the policy expired on July 12, 2018 without any value. My grandmother passed on July 23rd. We had no idea that she had this policy until this notice. She was literally on her death bed when it arrived. After digging in her papers I discover the original contract and she had been paying this since 1960. All that I can figure is that it is a semi annual payment that is due in October and April of $10.03 each and it may not have been paid in April because of her illness. I’ve tried to talk to someone but they won’t speak to me. Death certificates are slow and what can be done now to correct this.
Hi Dawn!
I’m sorry for your recent loss and I know this can be quite the emotional time for you and your family. My sincere condolences.
Without seeing the policy myself, I can’t really comment on anything outside the information you are giving me. Based on what I am seeing with the limited info I have, this sounds like a whole life policy (very popular during the time she bought the coverage) which may not have had much if any cash value accumulation in the policy.
Since it appears the policy payment was due in April, it leads me to believe that the policy lapsed. Insurance companies will send out notices to prevent this from happening; however, since the policy was what appears to be right about 3 months behind in payment then I am lead to believe this is the cause for the policy being officially cancelled for non-payment. Basically, they cancelled the contract because they never received the payment due and all benefits of the policy are no longer in force.
If the policy was actually paid in April, then you may want to discuss this issue with an attorney. Otherwise, if payment was not made and no one responded to any mail sent by the company, then there is little recourse to reinstate the policy and claim the benefits.
Again, without seeing the actual policy, I can’t say for certain this is the case.
I am sorry for your loss and I wish there was more I could do in this matter.
-Luke
Hello! If I have a fully underwritten term life policy, can I transfer it to a terminally ill relative so that they will have some coverage? Their family may need more than a guaranteed issue policy will pay. Thanks so much.
Hi Sarah!
Sadly, life insurance is not something you are able to transfer to cover a different individual. Each policy is written and underwritten with information provided from the “insured” (in this case, you) and covers only that person.
In this case, even a guaranteed issue policy may not work. Most of these types of policies have a “graded benefit” which is small window of non-coverage (usually 2 years) for any death due to medical/natural reasons and only covers the full face amount in the event of a death by accident. If someone dies of natural causes in the first 2 years, the premiums are refunded plus interest.
I hope this helps a little bit.
-Luke
I use to smoke socially when I drank about 10 yrs. ago. I could swear I mentioned that during my phone interview. I looked at my contract and i’m under “non-smoker”. Is that because I haven’t smoked in so long? Question reads, have you ever smoked? Will this cause a problem when I die? Should I call and make sure this will not cause a problem? I believe you mentioned they record the interview, can I get a copy for proof that I mentioned I used to smoke? Also, I have vagal nerve damage for surgery and have digestive problems which they’re aware of. 4 months after contract I was told I have a non-functioning gallbladder with stones. They wanted to remove my gallbladder but I declined due to my previous surgery gone wrong. If I get sick and die as a result from the gallbladder, can they decline payout? I also haven’t been taking my HBP medication due to my health insurance lapsing, I’ve just obtained my insurance back and will go back on. Would this cause a problem. Insured by American National.
Thanks
Hi Peter!
“I use to smoke socially when I drank about 10 yrs. ago. I could swear I mentioned that during my phone interview. I looked at my contract and i’m under “non-smoker”. Is that because I haven’t smoked in so long? Question reads, have you ever smoked? Will this cause a problem when I die? Should I call and make sure this will not cause a problem? I believe you mentioned they record the interview, can I get a copy for proof that I mentioned I used to smoke? “
Basically, after roughly 2-5 years of no nicotine usage most companies no longer consider you a smoker. It varies by company, but since you are past the 10 year mark AND you divulged the information honestly, I see no reason to be concerned. Underwritting took this into account when they wrote the policy. As far as getting a copy of the proof, I would reach out to their customer service to see if they can provide any document that confirms that.
“Also, I have vagal nerve damage for surgery and have digestive problems which they’re aware of. 4 months after contract I was told I have a non-functioning gallbladder with stones. They wanted to remove my gallbladder but I declined due to my previous surgery gone wrong. If I get sick and die as a result from the gallbladder, can they decline payout?”
Based on the information you are giving me, you will be covered. Unless this was a problem you were aware of prior to obtaining insurance, I see no reason what grounds the company would have to deny paying out.
“I also haven’t been taking my HBP medication due to my health insurance lapsing, I’ve just obtained my insurance back and will go back on. Would this cause a problem.”
Same as above. Once the policy is in effect and the contestibility period is over, there isn’t much the life insurance company can do unless there was fraudulent misrepresentation on the original application. Life happens as does health issues and companies are aware of this.
As long as you are honest when you apply and do not try to hide material information, there are very few reasons for an insurance company to deny covering a claim.
Hope this helps!
-Luke
Thankyou for all your efforts that you have put in this. Very interesting information. I like this site very much so much superb information.
I am writing this due to some questions I have about my deceased mothers’ life insurance policy. She had a 20 yr term life insurance policy for 100k. Since 4/2000 I was the only listed primary beneficiary. Because of the agreement I had with my mom I paid the premium up until her death. Sadly, my mother passed away last month. After contacting the Life Insurance Co., I come to find out an Alternate beneficiary received the payout. Additional information could not be provided as they themselves have different answers. My understanding per their policy and practice is that a POA can only initiate change of beneficiary if the POA is 6 months old. There was no change. Also how can a change of beneficiary be initiated if my mother had Alzheimer’s deeming her incapable of having the requisite capacity to sign legal documents? Maybe Undue influence? I thought there was some restrictions in place. And are there no measures in place to contact the only listed primary beneficiary? My limited understanding is that since it’s been paid out that it’s up to me to seek specialized attorney. Any ideas/suggestions? Thanks
Hi Jim!
First, I am not a lawyer nor am I licensed to give legal advice. Everything I am going to discuss here is for basic informational purposes and should not be construed as legal counsel.
This is a pretty complex situation you are laying out here and yes, an attorney is going to be your best course of action here. Preferably one with in-depth experience in your state’s insurance laws.
“How can a change of beneficiary be initiated if my mother had Alzheimer’s deeming her incapable of having the requisite capacity to sign legal documents?”
In general, unless there is legal documentation on file that clearly states that a person is not legally able to make decisions for themselves, it isn’t something someone would proactively ask about. That being said, without that documentation the insurance company would have allowed her to make changes on the beneficiary. As far as the POA question… I have no insight on that at all.
“And are there no measures in place to contact the only listed primary beneficiary?”
Beneficiaries will only be contacted if they are listed as such at the time of death. In most every case, the insurance company has little interest in who gets the money. In my experience, beneficiaries are not contacted if there is a change on a life insurance contract.
The only time I have seen payouts going to someone other than the primary beneficiary are:
1. If someone wasn’t actually listed as primary
2. Primary beneficiary was a minor
3. Primary beneficiary caused the death of the insured
4. Primary beneficiary is dead or unable to collect
Honestly, I would contact a lawyer and also request a copy of the entire file from the life insurance company… from signed application to the last transaction… and see what exactly happened. The lawyer can then best inform you of the course of action that is best for you.
This is a horrible situation to be in. I hope this helped a little.
-Luke
I am a beneficiary of a family trust. Mom and Dad have passed away and my two sisters are trustees. I know they have been deceptive with hiding a bank account and not listing it as trust property. I think I remember Mom had a life insurance policy which has also not been listed as an asset. As I am only a beneficiary, I have no idea who the life insurance carrier is. How can I find out about the policy as who and when it paid out to?
Thanks
Hi Carla!
Anytime you begin dealing with trusts, having an attorney who is knowledgeable on the laws that govern trusts is key. In this case, since you feel the trustees may not be operating honestly, consulting and retaining your own attorney may be the best solution. If he/she feels there may be dishonesty or lack of fiduciary trust, there may be a need to get the courts involved. Either way, going at this alone may not yield the best results.
Hope this helps!
-Luke
HI Carla, Can you tell me how much did it cost to setup the Family Trust? I am interested in creating one for my family.
Thank you in advance.
If my wife has life insurance and I am named as the primary beneficiary and lets say both my wife and I died in an auto or other accident, how do we ensure our minor son would receive the benefit? The life insurance carrier says we can not name him as a secondary beneficiary? They say to name someone else (a guardian) who would then give him the money but we do not have such a person to name. If we had a Will that states any life insurance proceeds go to our son would that cover it? if yes, what should we just leave the secondary beneficiary section blank?
Hi Richard!
This is an extremely common question across the industry. In this case, the insurance company is on the right track.
First, your life insurance and will are two separate entities. Your policy’s beneficiary will receive the proceeds, regardless of what the will says.
Second, leaving the secondary blank forces the benefit into probate and up for the courts to decide the fate (in this scenario).
Since there is a minor child involved, a will is vital. You could do it yourself; however, a licensed attorney will be the best option because he can best help discuss what options you have available to you under the law in your state regarding your estate, your child, and life insurance benefits. He may recommend appointing a guardian ad litem or something similar, but he may recommend looking at forming a trust. It really depends on your circumstances.
Personally, we just reworked our end of life plan and the strategy for what would be best for our 4 kids. It isn’t easy and can be a tricky situation.
As far as the minor child, if you do not choose someone to take over his guardianship, then the choice is 100% up to probate courts to decide. If there is a life insurance policy paying benefits to your estate because the primary expired as well, then that is up to the them as well.
I highly encourage you to review this with an attorney to make sure your end of life plan is as issue free as possible.
-Luke
Is it ethical for a life insurance company to ask the named beneficiary (after filing a claim) whether the decedent had any other life insurance policies? I can’t understand the reasoning for how a life insurance company would be entitled to this information.
My ex-spouse died, and we have four minor children. In our divorce settlement, we are each required to keep life insurance (because of the children), and the settlement instructs that each will name the other spouse as trustee (beneficiary) on behalf of the children’s financial support. The exact verbiage in our agreement is: “[Non-custodial parent] shall keep and maintain in full force and effect a policy of insurance on his life having a death benefit of not less than $XXX,000, naming [custodial parent] as trustee for the children so long as [non-custodial parent] has support or other obligations as set forth herein.”
After reading the settlement, the life insurance company has stated that “the children may have an interest in this benefit.” I am the named beneficiary, because the children are minors. The settlement also conditions that the benefits will be used solely for the financial support of the minor children, and that if the surviving parent does not fulfill his/her fiduciary duty to this agreement, the children may at some future point file suit.
So my ex named me as beneficiary on two life insurance policies (one through his employer, and a second policy independently). And I named him. I was named sole custodian of the children, and he was the sole financial support source for the children. Now his employer life insurance is asking for a copy of our settlement (which I gave them), and is asking me to answer the question of whether my ex had other life insurance policies besides this one, to fulfill his obligation to maintain $XXX,000 amount of life insurance.
They are also asking me if I am claiming the benefit “individually or on behalf of the minor children”, and whether a trust has been established for the children’s benefit. Our attorney used the word “trustee” (i.e. Spouse 1 will name Spouse 2 as trustee, and vice versa) and I think they are getting tripped up on the word. We did not establish a trust. We pledged to act informally as the trustee (fiduciary) of the life insurance benefits, ensuring that the monies are solely used for the financial support of our four children.
So their question of whether I am claiming the benefit as an individual or on behalf of the children almost feels like a trick question. I am claiming it as an individual because I (not the four children) am the named beneficiary. But our settlement governs the use of the monies and I am bound to that obligation, to utilize the monies “on behalf of the children”.
If it is standard course for a life insurance company to inquire about the insured’s “other arrangements” with life insurance companies, then I will disclose that information if I have some legal obligation to do so. But if they are just trying to figure out whether to honor their contract with my ex-spouse, which includes his naming me as beneficiary (in a state – IL – where beneficiary designation of a spouse is not automatically revoked upon divorce), but they are NOT legally privy to this information about other policies, then I will not answer their question.
I can’t help but feel like it is sort of dodgy behavior on their part, getting tripped up on semantics in our settlement, but at the end of the day, a.) I am the named beneficiary on a life insurance contract in a non-community property state, and b.) it is the divorce settlement that dictates my obligations to the children regarding the benefits, and judges my adherence to this; not the life insurance company. Do I have any obligation to answer their question about additional life insurance policies? (if you respond, feel free to edit for brevity)
Hi Elizabeth!
Very interesting situation you have in play here.
The way I am understanding it, you are correct in assuming the insurance company is ” getting tripped up on semantics in our settlement”.
In this case, it isn’t “semantics” as much as it is the legal language in the settlement. Since court orders trump business contracts, I think the company maybe making sure they are paying out the correct way. Since the order states you are the “trustee”, they may be looking for an actual trust to submit the payment to For Benefit Of the minor children in order to keep themselves in line with the court order and prevent any additional legal issues.
You run into the similar issues when you wrap in investments that are passed to minor children upon death without an established trust.
As far as the questions about other policies, they may also want to see how the other (if any) are paying out. Also, from a fraud perspective, if there were multiple policies from other companies all with the same beneficiary, they could be a need for them to verify and possibly investigate the claim. I don’t see how they can compel you to release this information because, as an ex spouse, you may not even have access to that information.
In this situation, I would recommend contacting the attorney you used for the divorce and explain to him the situation. He can contact their legal department and discuss what the hold up is, from a legal perspective. If they want a trust established for the payout, he could also help provide direction there. In a couple of hours, he could have this taken care of for you.
Based on the info I have, that word “trustee” could be tripping things up.
Hope this helps.
-Luke
I recently received a phone call from Lincoln Heritage Life in reference to a life insurance policy they said my husband had with them. My husband died in 2013 and I had no idea this policy existed. They told me they just found out that my husband had passed and they had been using the cash value to pay the premiums. Because it has been five years there is only $135.00 left and if I would send his death certificate they would send it to me. They would not tell me how much the policy was for originally. This week they did send me a reminder letter that has the policy number on it but their website does not allow you to reference the policy. Is this legal? Why would I not be entitled to the policy amount? It just seems underhanded that once the cash value ran out they all the sudden know he is dead. Do I have any rights here?
Hi Donna,
This issue is extremely common in the whole life insurance industry. You have to remember that insurance companies don’t proactively go looking to give money away and in order to get money from them, there has to be a claim placed against the policy.
THe way most WL policies work is that any cash value built up is used to pay the premiums in the event of nonpayment to keep the policy active. This is a standard practice and totally legal, as it is laid out in the policy contract before the insured signs the policy.
What makes me scratch my head is how this went unnoticed for 5 years, largely because many life insurance companies will send some sort of letter letting the insured or owner of the policy know if premium payments were missed. While I don’t expect them to proactively check death records, sending basic information to the policyholder regarding the cash value balance is a fairly common practice.
All in all, yes… this is legal. As far as any additional rights you may have, your lawyer may want to look over the policy and see if there is any type of violation of your state’s insurance law on their part. You can also file a complaint with your state’s insurance commissioner and have the matter investigated by the regulators of the industry.
Hope this helped a little.
-Luke
Hi, My husband and I I just started new jobs and they both offer life insurance through a company, My husband and I are currently shopping for life insurance. We are wondering what route we should take. Would it be best to go with our employer insurance or find a company.. we have 5 kids so we definitely want to protect our family in case of an emergency ?
Hi Rosie!
I highly encourage every person to have their own personal, standalone policy. A group insurance policy is a nice perk, but they rarely pay out. Since the policy is owned by the employer, they can change the benefits, the company, the amount they contribute, and so on with no real input from you. Also, many of these policies only offer 2-3x your yearly income which is not enough to protect the futures of 5 kids.
What happens if you leave your job or are laid off? Employer benefits are gone. Rarely do you find a policy that is portable like retirement plans are.
As a side benefit? Sure, but make it a point to have your own policies in force as well. A simple 20 year term life policy often runs less than what you would spend taking the family out to dinner once a month.
Our agents can shop the market for you and find one that fits both your needs and your budget. Don’t hesitate to run a quote and find out.
Hope this helped!
-Luke
I signed up with Prime over 30 years ago and thought I was on the decreasing term plan @ 40.00 mo. For some strange reason i was put on the Custom IV 10 Term plan about 10 years ago @ 72.87 per mo. My policy terms 10/18, and I have been offered continuation options , 288.00 per mo with same coverage, then after 10 years decreasing until age 100 or 304.00 mo keeping the same coverage til 100 years. I contacted my agent, who gave me additional options with pricey premiums , a bit lower. I had some difficulty contacting the agent, emailed him with no response, had to get a customer service agent to get him on the phone. I expected more from him in the area of customer service. He seemed a bit disconnected and not really concerned about my coverage issues. I asked him to send me an email with the quotes , never got them. I am thinking about going to another company. Any advice?
Hi Wendy!
I rarely make it a habit to bash a company, but Primerica is one company I would drop in a heartbeat. I only say this because I used to sell for them back when they were part of Citi and since they broke off, it is not a company I feel is best for the customer.
First off, any agent that offers a decreasing term product as a viable solution is not to be trusted, in my opinion. These types of policies have very few practical applications in insurance strategy because (in almost every policy I have seen) you pay the same dollar amount for the entirety of the time it is in force, but the benefit goes down.
Secondly, if the agent sold you on $40/m policy but instead you found out you now have a $72.87/m policy, there is something shady going on. They get paid on a % of the commission (as do their MLM higher ups), so pushing you to a higher cost policy only means they benefit more. Another great reason to look elsewhere.
Also, these “Agents” rarely are “professionals” in that they do not have advanced knowledge and training in the insurance world. Their training is largely on aggressive and manipulative sales tactics, not on the actual policies or other types of policies on the market. When dealing with your finances, is someone who does insurance “part-time” the best way to go?
Our agents here can help find a policy that suits your needs and your budget. I am also sure we can find something that is a bit more competitive or makes better sense than $288/m.
Hope this helped a little.
-Luke
Hi Luke, can you guarantee people will get a pay-out from life insurance policies? Is it right to sell people insurance without disclosing that the likelihood of them being paid is not guaranteed?
Hi Andrew!
Payouts are never blanket guaranteed because there are exclusions that you must be aware of in a policy. If you die from a skydiving accident and the policy excludes coverage for that activity, there will not be a death benefit because the contract has that exclusion. However, if the policy is paid up to date and the death is not from an excluded activity or circumstance, there are very few reasons why the life insurance policy wouldn’t pay out.
The main reasons why life insurance doesn’t pay surrounds lack of payment and misrepresentation on the application itself which is why we encourage everyone to be honest and not hide information while applying for life insurance.
It is important to remember that all insurance policies are contracts, according to the laws of the state where the policy is written. While some insurance companies can be slow to pay or refuses to pay at times, there are legal grounds in many of these situations for the beneficiaries to pursue legal action. This also is one of the main reason we aim to work with the most reputable life insurance companies who make the claim process as simple as possible.
I hope this helped clear some things up.
-Luke
I work a state job that just recently changed its life insurance company for the first time in decades. So they had an open enrollment period that said you could get up to 500K optional life and 100k optional life for my spouse without evidence of insurability and such amount for dependents so I got the max on everything without having to have any questions asked. The only question asked was about tobacco and I answered honestly as we both use tobacco. It has been almost 2 years as of 1/1/19. Can they come back and bring up things that were never even asked about during this “special” open enrollment thru met life if something were to happen? I cant even seem to find anywhere a certificate of coverage on optional life only on ADD.
Hi J!
Since that was the only question on the application and you answered honestly, I can’t see any reason for there to be issues down the line.
Group term is a nice perk, but keep in mind two things:
1) Your company buys coverage in bulk (much like buying something at a wholesale club) and at a much cheaper rate, which is why it is so inexpensive. The company, not you, owns the policy and can make changes as they see fit. Something is better than nothing, but it is important that you realize that you don’t have control of the policy and rarely can you take it with you if you were to leave the company.
2) These polices are cheap because, statistically speaking, you are more likely to need the coverage when you are not covered. For example, if you become terminally ill and cannot work, you lose your benefits including life insurance.
For these reasons I tell everyone I work with to invest in some affordable term life insurance outside of your company and consider the group term more like the perk that it is, instead of the ultimate solution for life protection.
Overall, it sounds like you should be in the clear based on the info you gave; however, if you have more questions about the policy then the benefits administrator in your company’s HR department could give you clearer insight overall.
Hope this helps!
-Luke