Why life insurance claims get denied

Life insurance claims are usually denied for one of a few reasons: the policy had lapsed for unpaid premiums, the death fell under a policy exclusion, the insurer found a significant misstatement on the application during the policy's first two years, an accidental death benefit's definition of "accident" was not met, or the person claiming is not legally entitled to the money. A claim on a policy that was in force, past its first two years and not subject to an exclusion is hard for an insurer to refuse.

A denial is a decision you can challenge, not the last word. The insurer has to tell you in writing which policy provision it relied on, and that explanation is the starting point for any appeal.

The common reasons at a glance

Misstatements during the contestability period

For the first two years after a policy is issued, the the two-year contestability period, the insurer can review the application and rescind the policy if it finds a material misrepresentation: an incorrect or omitted answer that would have led it to decline the application or charge more. Common examples are undisclosed diagnoses, prescriptions, tobacco use, or dangerous jobs and hobbies. When a policy is rescinded, the insurer typically refunds the premiums instead of paying the death benefit.

Not every mistake counts. The question is whether the correct answer would have changed the underwriting decision, and state laws differ on how that is judged. After the two years, the incontestability clause generally bars the insurer from contesting the policy over application answers, though some states make exceptions for fraud. Reinstating a lapsed policy can start a new contestability period for statements made in the reinstatement application. A wrong age or sex on the application works differently: rather than denying the claim, the insurer adjusts the benefit to what the premiums would have bought at the correct age. More on how insurers treat application answers is in what happens if you lie on a life insurance application.

Lapse for unpaid premiums

A policy lapses if a premium is not paid by the end of the grace period, typically about a month, with the minimum set by state law. If the insured died during the grace period, the insurer generally must pay the claim minus the overdue premium. Before accepting a lapse denial, check:

• Whether the insurer sent the lapse notices your state requires, to the right address, and to any third party the policyholder designated
• Whether a permanent policy had cash value that should have paid the premium through an automatic premium loan, or kept reduced coverage in force under a nonforfeiture option
• Whether payments were in fact made: bank statements can show premiums the insurer says it never received

The rules are covered in life insurance grace periods and lapses.

Policy exclusions

Most modern life insurance policies have few exclusions. The most common is the suicide clause: if the insured dies by suicide within a set period after the policy is issued, usually two years and shorter in some states, the insurer typically returns the premiums rather than paying the full benefit. After that period, suicide is generally covered. See Does life insurance pay for suicide? The suicide clause explained.

If you or someone you know is struggling, call or text 988 (Suicide & Crisis Lifeline).

Some policies, more often older or specialized ones, exclude deaths from war, certain aviation activities or hazardous pursuits named in the policy. The exclusion has to be in the policy you own, and courts generally read unclear exclusion wording in the policyholder's favor. what life insurance doesn't cover: exclusions to know lists the common ones.

Accidental death disputes

Accidental death riders and AD&D policies pay only when the death fits the policy's definition of an accident, and they usually carry more exclusions than life insurance, such as intoxication, drug use or illness contributing to the death. That makes them a frequent source of disputes: an insurer may pay the base life benefit while refusing the accidental portion. See accidental death claims: why they get disputed.

Problems with who gets paid

Sometimes the claim is valid but a particular claimant is not entitled to it:

• The slayer rule. A beneficiary who unlawfully and intentionally kills the insured cannot collect; the money goes to the next eligible beneficiary. See the slayer rule: when a beneficiary can't collect.
• Divorce. Many states automatically revoke an ex-spouse's designation after divorce, though federal law can override this for employer plans.
• Competing claims. When two people claim the same benefit, the insurer may ask a court to decide through interpleader rather than choose.

Coverage that was not in force

Claims are also denied when the death happened before coverage started, for example before the policy was delivered or the first premium was paid, unless a temporary insurance agreement or conditional receipt applied. Group life through work ends when employment ends unless it was converted or ported; check whether the death fell within the certificate's conversion period, during which group certificates often still pay.

What a denial letter should include

The NAIC's model regulation on life and health claims, which states may adopt in whole or in part, says a denial should be sent in writing within 15 days of the decision, should cite the policy provision, condition or exclusion it relies on, and, if you object, should tell you that you can ask the state insurance department to review it. For employer plans governed by ERISA, the Department of Labor's claims regulation requires the specific reasons, the plan provisions involved, any information you could add to support the claim, and the appeal steps, and gives you at least 60 days to appeal.

What to do after a denial

1. Read the letter closely and note the provision cited and any deadline.
2. Hold off on cashing a premium refund check until you understand the denial, and ask a lawyer whether cashing it could affect your rights.
3. Request the claim file: the application, the policy and riders, the records the insurer relied on and the premium history.
4. Check the dates: policy issue date, any reinstatement date, the date of death, and when premiums were paid.
5. Appeal in writing with any evidence that answers the reason given; see how to appeal a denied life insurance claim.
6. File a complaint with your state insurance department if the insurer will not explain or reconsider; see how to file a complaint against a life insurer.
7. Talk to a lawyer for rescissions, large accidental death claims or ERISA appeals; many life insurance lawyers work on contingency. See when to hire a life insurance lawyer.

Key takeaways

• Most denials trace to a lapse, an exclusion, an application misstatement in the first two years, an accidental death definition, or a dispute over who should be paid.
• After two years, the incontestability clause generally protects the claim from challenges over application answers.
• The insurer must cite the specific provision it relies on; ask for the full claim file before responding.
• Deadlines matter, especially the ERISA appeal window of at least 60 days for employer coverage.
• A state insurance department complaint is free; a lawyer can help when the stakes are high.