Unfortunately, life insurance won’t pay off every time you die. In fact, it won’t even pay in some of the most common circumstances where you might assume it would.
This article will look at the five most common reasons life insurance won’t pay out when someone dies, and what you can do about it if you find yourself in one of these situations.
Life Insurance Will Not Pay If
- Your Death Is Suicide Life insurance will not pay for suicide. An individual must be determined to be legally insane or have a physical or mental condition at time of death in order for life insurance to cover suicide.
- You Have Existing Health Problems Current medical conditions could make it difficult for your beneficiaries to collect from your life insurance policy, depending on how serious they are and what type of policy you have. If you have any medical problems, discuss them with an agent so you know whether it affects your coverage.
- You Have Major Debt Major debt makes it difficult for survivors to get their hands on cash from a life insurance policy quickly.
- Your Body Is Not Recovered If a life insurance company cannot locate your body, it will not pay a death benefit.
If you live in an area where bodies aren’t usually recovered, consider purchasing additional coverage that pays if your body isn’t found.
- You Are Already Insured You can only have one life insurance policy at a time. If you already have one, you must cancel it before applying for another one.
- You Have Been Declared Dead Life insurance companies don’t pay claims on people who are declared dead and then later found to be alive.
This is because there is no way to prove that someone is actually deceased once they have been declared so by authorities or family members. 7.
It’s Inadequate Protection
The most common reason life insurance is denied or not paid out when it’s needed is because it wasn’t adequate.
When purchasing life insurance, financial advisers recommend buying eight to 10 times your current annual income.
This ensures you have enough money if your primary breadwinner passes away and that debt payments can be covered in addition to basic living expenses like mortgage or rent, utilities and food.
If you bought less than that amount of coverage, consider increasing your policy before buying a second one. Otherwise, you’re likely paying too much for inadequate protection.
A better approach is to take those savings and build a separate emergency fund—which should equal three to six months of expenses—before going back to buy additional coverage.
If you already have a policy in place, determine how much it would pay out if you were to pass away. Then compare that payout with what you currently have in savings and investments like an emergency fund and retirement accounts.
If your life insurance policy is inadequate—meaning it pays out less than what’s available outside of it—it’s time to boost your coverage before buying a second one.
There Were Pre-Existing Conditions
The most common reason life insurance will not pay out is because of pre-existing conditions. A pre-existing condition, in general, is a condition or illness that you were diagnosed with before purchasing your policy.
In other words, if you’ve been living with asthma for 20 years and then decide to buy life insurance on yourself, chances are it’s not going to cover your death if you die from an asthma attack.
Pre-existing conditions can sometimes be covered by certain policies—but it depends on a number of factors.
The next most common reason life insurance will not pay out is because of suicide. If you intentionally take your own life, it’s very likely that your policy will be deemed invalid, so you can rest assured knowing that there’s no chance of anyone coming after your family for money owed to them by a life insurance company.
Though it’s difficult to believe that you may ever find yourself in such a hopeless situation, it happens far more often than many people realize.
The Cause of Death Was Self-Inflicted
First and foremost, life insurance will not pay out if you died from a self-inflicted injury. If, for example, your death was a suicide or an accident where you were attempting to end your own life, then that’s something your beneficiary cannot collect on.
Life insurance is meant to provide financial stability for family members when something unexpected happens to a loved one; however, it also has several other stipulations about what’s considered acceptable.
For example, life insurance will not pay out if you die from any of these:
If You Die Within 24 Hours of Getting Life Insurance: Some life insurance policies have a clause stating that coverage will be voided if someone dies within 24 hours of getting their policy.
This is because there’s often a waiting period before life insurance kicks in; it’s also why you may have to undergo some medical tests before your application is approved.
However, there are exceptions to this rule, so you’ll want to check with your provider for more information about your specific plan.
If You Have Other Life Insurance Policies: Similarly, life insurance companies will typically not pay out on any other life insurance policies you may already have in place when you take out another one—even if they’re from different providers.
There Were Fraudulent Reasons for Claiming
Life insurance not paying claims often is done so for fraudulent purposes. Make sure that you’re in good health and that you fully understand your policy before deciding whether or not to make a claim on your life insurance policy.
The biggest risk of making a claim is that it will raise premiums or prevent you from purchasing future policies with other companies (deficiency judgments).
You could also face difficulty getting coverage with another company if you’ve already committed fraud. Be aware of these risks before trying to take money out of a life insurance policy.
There are some exceptions: permanent total disability, small cash sum, accidental death, and survival-benefit clauses in annuities do have limited payout conditions—make sure you understand those restrictions before claiming any benefits.
The Cause of Death Is Unknown/Accidental
In some cases, life insurance companies cannot determine what caused your death. This is called an unnatural or accidental death.
Examples include a car accident where you were found in a burned-out vehicle that didn’t have any skid marks on it.
Or if you were struck by lightning and life insurance could not determine why you had died. In these instances, life insurance will not be able to pay out your beneficiary and, depending on what state you live in, may not have to refund premiums either because no one was at fault for your death and there is nothing they can do about it except deny payment of a claim.