In this blog we outline the five most common reasons for life insurance claims being rejected and advise how you can make sure that your family’s claim in the event of your death is not one of them!
1. You withhold information from a provider
The most common reason for a policy not paying out is because of non-disclosure of relevant information.
Here are two examples of what would be considered non-disclosure (or fraud):
- You develop cancer before taking out a policy and don’t tell the insurer.
- You say on your application form you don’t have a heart condition when in fact you have a strong suspicion that you do, but have not yet had medical confirmation.
In these instances, the life claim can be rejected or the pay-out reduced (see below).
Don’t let this happen to you:
Be perfectly candid about the state of your health and your lifestyle when you buy the policy.
2. Your premiums are not up to date
A policy is a legal contract – you pay a monthly premium in exchange for insurance cover. Stop (or forget) to pay, and that contract no longer exists, because you have not kept your side of the bargain.
One of two situations typically occur:
- You fail to pay the regular monthly premium for one or two months, in which case your cover is suspended, and your claim may be declined.
- You fail to pay for several months, in which case the contract could be terminated and there is no possibility of claiming.
Don’t let this happen to you:
Preferably pay by debit order, or set up some system whereby the premium is paid automatically. Don’t rely on remembering to deposit the money.
3. You did not inform your provider of certain life changes
Many people think once they’ve bought life insurance they won’t have to think about it again. However, you need to update your policy if you adopt riskier behaviour, as this will affect your cover - either in terms of the premium you should be paying, or because insurers will not cover some behaviours, for example taking drugs, dangerous sports, etc.
Don’t let this happen to you:
Keep your insurer informed of lifestyle changes as required by the policy terms and conditions listed in your policy documents.
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4. Suicide is not covered by the policy for the first 2 years
Most life insurance policies will not pay out if the policyholder commits suicide within a 2-year waiting period.
5. The policy only covers accidental death
People seldom expect to die from a terminal illness but do fear accidental death. As a result, they often cover themselves only for accidental death. This can be a shock to the policyholder’s family if he/she dies of natural causes. Certain policies might also impose a waiting period on terminal illness claims, i.e. they will not be covered for a certain period of time after policy inception.
A terminal illness is considered to mean a rapidly progressing sickness where your life expectancy is deemed to be no more than one year and that has no available cure.
Don’t let this happen to you:
Read your policy carefully and make sure you know exactly what it covers and if there are any waiting periods. Share this information with key family members.
What happens if you’re caught failing to disclose information?
The new information uncovered at the time of a claim gets reviewed by the insurer’s underwriting department for it to determine what it would have done had this new information been declared at the outset.
It therefore depends how serious is the non-disclosure:
- If it is so serious that the insurer would not have offered you cover had it known, then your claim will most likely be rejected.
- If it is not so bad, and the insurer decides it would have still offered you cover, but at a higher premium, it may reduce the pay-out by the same percentage it would have ‘loaded’ your premium. For example, if the underwriters had this new information, upfront, they would have loaded or increased the premium by, say 25%, then the benefit paid out is accordingly reduced by 25%.