It's hard to believe, but the last thing you might expect to happen is an insurance company denying your death benefits under a life insurance policy. Believe it or not, but this happens all the time and insurance companies, under certain situations, can and will deny a death benefit claim. In this article, we briefly explore the issues involved when an insurance company fails to make payment of proceeds of a claim. If you are a beneficiary under a policy, here are some things you should be aware of:
Contestability. The insurer has the right to deny payment under a claim during the "contestable" period. Stated simply, if the insured (the person who bought the policy) dies within less than 2 years after the policy was issued, the company can investigate the insured's responses on the application for insurance. Typically, the company will request to review the medical records of the insured. If the insurer discovers that the applicant misrepresented his or her medical condition, or omitted pertinent information, it can deny payment. The law allows insurance companies to take such action. Even if the denial occurs, however, it doesn't mean that the beneficiary doesn't have recourse. Certain arguments may be available to the beneficiary to counter the denial of the claim.
Materiality. In general, for a company to deny payment under a policy, the misrepresented or omitted fact must be material in nature. A particular fact is "material" if, had it been fully and correctly disclosed on the application, the insurer would have either denied coverage or provided coverage to the insured under different terms. Unfortunately for the beneficiary, it is not difficult to prove that the fact at issue was material.