If My Life Insurance Claim is Denied, What are My Options?

This article was updated: Sept. 5th, 2023

A death in the family can be a stressful and emotionally charged event. Add to that the financial stress resulting from the death of a loved one, and it can become an overwhelming task to deal with. Life insurance policies are meant to help alleviate some of the financial stress left by the passing of someone who is important in your life. But what do you do when you are blindsided by a claim denial? Our life insurance litigation attorneys explain the process of filing a claim and what you can do if you believe your claim was denied in bad faith.

What Is the Life Insurance Payout Process?

Life insurance is a type of contract between an insurance company and a policyholder with the purpose of paying out a death benefit when the insured person passes away. When the policyholder dies, the insurance company needs to be contacted right away — this is the first step to initiate a death claim. Every insurance company follows a slightly different process for handling life insurance claims. Some companies may allow you to file a claim online, while others may still require paperwork to initiate your claim. Either way, be prepared to provide supporting paperwork and evidence to back up your claim and to provide essential details so that the insurance company has the right information to issue the correct payout amount.

Next, the insurance company will investigate the claim and either agree to pay the claim or deny it. According to California’s Fair Claims Settlement Practices Regulations, once a claim is received, insurers have up to 40 calendar days to “accept or deny the claim, in whole or in part,” and “the amounts accepted or denied shall be clearly documented in the claim file unless the claim has been denied in its entirety.” If the claim is accepted, most insurance companies will issue a payout within 30 to 60 days from the date when the claim was received.

What Is the Contestability Period in a Life Insurance Policy and How Long Does It Last?

A contestability period is a clause included in virtually all life insurance policies. It allows for the insurer to delay issuing a payout to ensure material misrepresentations were not made in the policy application. The contestability period applies if the policyholder dies within the first one to two years after the policy is issued. In those situations, insurance companies can delay the payment for as long as is reasonably necessary while they carry out further investigations into whether to contest a policy.

Almost all insurance carriers will conduct what is known as a “contestable investigation” if a death occurs within one or two years after the policy is issued. If the policyholder did not provide a complete and accurate picture of his or her medical history and habits such as engaging in extreme sports or risky hobbies, smoking tobacco, any criminal records that would indicate risky behaviors, and whether they have an occupation that can be considered dangerous (such as law enforcement or construction work), the insurance company may deny the claim, or in some cases, issue a smaller payout after retroactively adjusting premiums to accommodate for the previously unknown risk factors.

If the insurer finds no material misrepresentations in the application process, typically it will make the death payment to the named beneficiary, assuming there are no policy exclusions that apply.

What Are Some Reasons a Life Insurance Claim Can Be Denied?

Life insurance claims can be denied for a variety of reasons, but among those are (1) failure to disclose an important medical condition or other pertinent information (as discussed above); (2) the policyholder stopped paying life insurance premiums and the policy was lapsed; (3) the policyholder has outlived their term life insurance policy; or (4) an exclusion in the policy, such as the policyholder died by suicide within the first two years of the policy issuance.

If the policyholder stopped making premium payments and allowed the policy to lapse, then your claim will be denied because the policy was not in force at the time the death occurred. In some cases, we find that the insurers have not properly lapsed policies yet they still assert that the policy was properly lapsed. In some cases, if the policyholder was paying for a term life insurance policy that reached the end of its term and was not extended or converted into a permanent policy, a death benefit payment will not be issued. Finally, all life insurance policies have some exclusions. For example, most policies provide that a death benefit payment is not payable in certain situations, such as suicide if the suicide took place within the first two years after the policy was issued. Instead of paying the death benefit, the insurer will return to the beneficiary any premiums paid up until the date the death occurred. In many cases, we find that the insurers have not properly invoked policy exclusions.

What Steps Should I Take if My Life Insurance Claim Was Denied?

If you have submitted a life insurance claim and it was denied, the insurance company needs to provide a written explanation of why they decided to deny your claim. After the insurer denies your claim, they may terminate the policy and return any premiums paid. If you believe your claim should not have been denied, your first step is to try to communicate with the insurance company and see if they will reconsider their decision after you provide additional documentation that may have been missing from the original claim. If that does not work, you may try to file a consumer complaint with the California Department of Insurance. However, our experience is that we have never seen such a filing result in overturning the claim denial. Alternatively, you may want to seek the help of a life insurance attorney. At McKennon Law Group PC, our attorneys have assisted thousands of clients in navigating their insurance claims denials and achieving a favorable result.