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.
Have Questions?
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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.
My dad was a drug user but he got off drugs before he passed . He passed away from cov-19 but all his records show is that he had cocain in his system in all his file work from. The hospital are we still going to get our payout .the insurance company wanted his hospital paperwork up until he passed away .
Is this for health insurance?
Question how far back do the insurance companies look at past medical before approving a policy? Reason I ask is 20 plus years ago I checked into a rehab. I was young and drank did some drugs. I have been clean ever since. I wasn’t 100% truthful about that when asked if I ever was in a rehab. My concern is that when I pass away one day will this come up if it hasn’t all ready? I don’t want my family not to get the payout. I am a professional business man now living a healthy family life over 20 yrs.Everything else is clear no heath issues and I do not take any prescription medication at all.
The applications typically look back 10 years.
After a two year contestability period, the insurance company needs to prove intentional fraud to dispute the policy, which is very difficult to do. This is a super difficult question for me to answer since this is more of a legal question.
A suggestion would be to keep the current policy, and then apply for a new policy with a different company, in which you indicate the history of rehab. This way you have two policies, with the one you don’t need to worry about at all.
From my experience, the rehab 20 years ago does not make you uninsurable or even cause a lower rate.
Do most life insurance policies pay out to beneficiaries without substantial contest where policyholders die of police actions? [not addressing lawsuits or public agency liabilities] The “illegal activities” exclusion hints of possible nonpayment even for minor unrelated infractions. The “act of war” exclusion hints of possible nonpayment because the death may have occurred during the conduct of official government duties. Net, I’m unsure what happens.
My mom took out a 15,000 policy and had it exactly 2 years and she passed away on Aug. 6, 2020 and cause of death was dementia and cerebral atherosclerosis and they still have not paid out. They have requested medical records form all her doctors. We filled out the application and then an interview that lasted almost 2 hours on the phone. We provide all her medications and procedures and past procedures and they approved her application. If they deny her payment is there any thing I can do?
Contact our claims specialist. He should be able to assist you.
Have you since gotten an answer?
Can you be more specific? Answer to what?
We are quoting life insurance for my husband. He supposedly has high triglycerides and cholesterol. He can improve it and move up one class. But we arent sure if its better to say no and then work on those things so he can requote? He is 32 YRS old, a little overweight, no other things that I know of popped up. $750k 20 year term and it came to $55 a month. Mine for the same amount was only $24 a month or something and I know hes male but unsure if we should say yes or not. :
I just came across this page while trying to research if saying yes while having bad numbers will follow you or not.
Absolutely take the policy. Re-apply later if you think you can get a better rate.
Men are always more expensive (women live longer). Please don’t say no to the policy. And congrats on qualifying for a policy. Many people don’t.
My husband just died of cancer and has a 50,000 term life insurance policy that is just a year old. Of course they are contesting the policy. I don’t know how I could have possibly knew a year ago that he was going to die from cancer-do you think they will payout on this policy?
Hello Marge
Since your husband died due to natural causes, and term life insurance policies typically do not have a graded benefit period, the coverage should be paid. I would recommend filling out the form above which will put you in contact with a business that specializes in cases just like yours.
Best of luck, and sorry for your loss!
Just an update-I am still waiting for ny life to make a decision on my husband’s term life insurance. They got his records from our doctor and, apparently that wasn’t enough they wanted the records from the cancer hospital. I am so afraid they won’t pay. He died from lymphoma which gave him cancer-his body was full of it. Do you still think they will pay?
Just a update-its been 3 months and still no decision about my husbands term life policy from ny life thru aarp. They got his records from his doctor but wanted the records from the cancer that he went to. He died from lymphoma which filled his body and his brain with cancer. I need this money to pay his hospital bills and the funeral home-do you still think they will pay?
My father in law recently passed away. He had a $100,000 life insurance policy through is work paid fully by the company he worked for for being an employee. My wife filled the paperwork and the insurance company denied the claim because he was a part time employee. Is there anything we can do?
Adam, I would definitely recommend filling out the form above. We are partnered with a company that specializes in cases exactly like yours!
I am the trustee of my grandmothers irrevocable trust. She passed away May 2019. Her life insurance company, that she had been paying into for 70 years mailed me paperwork to complete. I completed it several times and provided the requested info; including a certified copy of her death certificate & trust paperwork from the attorney. They continued to send me a letter requesting court documents for probate. Irrevocable trusts do not go thru probate & again, the estates lawyer reiterated what documents I needed to send the insurance company. The letter sent by the insurance, also stated if I already provided the requested docs to ignore the notice. Though, I responded it to it several times. Well, now COVID happened and took away time during the past year…and I just received some back-mail; including, a letter from June 2020 requesting the same probate docs and to disregard the request if I had already responded. I contacted the company directly via phone today, asking what it is they are needing being I already provided the requested paperwork and responded to their correspondence via mail multiple times. I also, reiterated what they should already know about irrevocable trusts and the rep told me it may be too late now to receive the pay due to the estate from the policy? I am now awaiting them to contact me again next week. This company received what they requested already within 90 days of my grandmothers death when I received the insurance initial letters, notifying me of the policy. Now because of their “lack” in understanding laws and irrevocable trusts, they are back peddling and murmuring it may be too late to receive funds…due to their negligence in dropping the ball. I do not know the value of the policy, being she lived until she was 98 yrs old and because of her age, life insurance did not help me with the funeral bills that were an upward of 14.8K out of pocket. Now they are saying there was money in the policy to be paid out for something…Help!
This discussion is making me wonder. My mother filled out a life insurance policy for herself over 12 years ago, she always took good care of her health, and the insurance company New York life even completed a mini exam of her. As far as I am aware all of her health records were disclosed. I the subsequent years she has declined in health, mostly just age related cognitive decline, some less mobility, and high blood pressure which she manages through diet and excercise. Now, I am thinking the life insurance company would not pay if she passed away.
As long as you make payments and keep the policy active, New York Life will pay out a death benefit. Once a policy is signed, the insurance company cannot change the terms. And the lookback period of contestability is 2 years. You are long past the 2 year contestabiliy period.
It’s a sad thing to have a sibling or a beloved one pass out, but it’s a catastrophic thing to have their life insurance denied especially in the case of a father or a husband. This article is invaluable for everyone purchasing life insurance.
I loved when you mentioned that 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. My father just bought a farm from his retirement fees. I will share this post for him to find the best farm insurance agency to cover his newly bought farm.
I am paying on a spousal term life insurance policy for my husband through work. It is not underwritten. He was diagnosed with dementia roughly 4 months before I began work and his policy. Will the insurance company pay out since it in not underwritten?
If the policy did not ask any medical questions then the policy should payout. You may want to contact an insurance claims lawyer for a better answer and any hurdles you may be faced with if you need to file a claim.
It may be worth scheduling a consult with a life insurance claims specialist.
I never took into account the fact that when a claim is filed during the first two years of the policy’s inception, the insurance company will look into the reason for your death. I remember when I was a college student I was proudly answering the question but now I realize it was different. Thank you for helping me understand the right information about life settlement.
Is there a way to search for a policy if you can’t find the paperwork
We created a guide to find out if someone has life insurance.
Places to start are:
Free Online Services
National Association of Insurance Commissioners (NAIC)
Unclaimed.org
Missingmoney.com
Paid Services
MIB
VitalCheck
Policy Inspector
I hope this helps.
I’ve been with the same company for 15 years and always had additional life insurance for my wife and I through our benefits package. We were recently bought out by another company and had to re declare the additional life insurance benefit with the new company. I am wondering if this event will re initiate the 2 year look back period?
This is a great question. Most likely, yes. But the lookback period examines fraud and misrepresentation on the application, and group life insurance has only a few questions.
Would payment of death benefit be denied if the insured died as a result of failing to seek treatment for a health condition that is normally easily treated?
If the policy has been active for over two years, then the policy should pay out. Failing to seek treatment is not an exclusion in the provisions of a life insurance policy.