Group Life Insurance vs. Private Life Insurance
There are, generally speaking, two types of life insurance products that people pay for in Canada.
The first type of life insurance is that found in group policies, which come with a set insurance benefits package employers provide to their employees as a perk of employment. Before offering group insurance policies to employers to offer their employees an insurance company will consider things like the type of industry the employer operates in, the demographic of the usual employees for that type of industry and that employer, or other similar employers, claim history with the insurance company. The insurance company will use that information to determine life insurance benefits and the associated premiums. They usually do not look at a specific individual while underwriting group life insurance policies and as such the coverage is usually for a lesser amount.
The second type of life insurance is private life insurance policies, which often require an applicant to answer a number of questions and undergo a paramedical evaluation. The questions that will be asked of an applicant for private life insurance will look at things like the applicant’s age, profession, hobbies, criminal history, medical history, driving history, and other considerations that factor into the underwriting process. The insurer will look at these factors to consider their risk and decide what amount of insurance coverage to offer and at what premium. In the private context insureds can often get much higher coverage under a life insurance policy, usually dependent on how much they are agreeable to paying for premiums.
Getting coverage in place for a life insurance policy is only one part of the puzzle. The other is ensuring that the policy pays out life insurance benefits to the beneficiary in the event of the death of the policy holder. Unfortunately, life insurance policies can often be denied. Below we will look at some of the most common reasons for denying life insurance claims.
Most Common Reason Group Life Insurance Benefits Get Denied
Because group life insurance policies are much more general than personal policies and there is often no individual application or paramedical examination, the most common reason for a denial of life insurance benefits under such a policy is that the cause of the death of the policy holder is excluded under the contract for insurance.
Most people do not read the fine print in any insurance policy, and this is even more true when it comes to group insurance policies where you have no say in the negotiation of the terms of the contract. This does not change the fact that almost all policies for life insurance have a section devoted to causes of death not covered by the policy.
Common excluded causes of death include:
- Death caused by pre-existing issues
- Death caused by hazardous activities
- Death caused by illegal activities
- Death caused by war or terrorism
- Death caused by homicide
- Death caused by suicide
If a policy holder dies from an excluded cause of death then there is no payout of benefits to the named beneficiary.
While this is the most common denial for group life insurance policies it can apply to private life insurance policies as well.
Private Life Insurance Benefits Denials: Misrepresentation, Fraud, and Contestability
Unlike group life insurance, private life insurance has an application and paramedical examination which requires individual specific information be provided to the insurance company before life insurance coverage is approved. Due to this, the most common reason private life insurance claims get denied is due to misrepresentation or fraud on behalf of the insured in the application process.
Insurance application and paramedical examinations deal with complex medical and personal questions which go back many years. Often applicants do not have a strong recollection of their medical history or the timelines relating to the same. If, due to this, they give a wrong or misleading answer in the application process that is contradicted by medical records or other forms of evidence and the insurance company relied on that answer in agreeing to issue coverage under a life insurance policy, the insurance company can use that as a basis for denying benefit payments. However, depending on how long the life insurance policy has been active for, the important distinction can be whether or not the insurance company can prove that there was fraud on behalf of the insured during the application process or not.
During what is called the “contestability period”, usually the first two years of coverage under the policy, an insurance company often only has to prove there was a misrepresentation or a material fact in the application by the applicant and that will be enough to allow them to deny coverage under the policy. The misrepresentation does not have to be made purposefully by the applicant, all that matters is that there was a misrepresentation and that will be enough to deny coverage under the policy. However, this changes once the contestability period ends.
After the contestability period ends, an insurance company can often no longer deny the claim on the basis of misrepresentation. If the insurance company wants to deny the claim based on the answers provided by the insured during the application process they need to be able to prove that they were a victim of the fraud of the insured, a much higher threshold than that of misrepresentation.
Life Insurance Claim Denials: Premiums and Inaccurate Clinical Records
There are other reasons that life insurance claims get denied beyond excluded causes of death and misrepresentations or fraud.
Another common cause of denial of life insurance claims is that the insurance policy lapses due to failure to pay the premiums on time. There is often a grace period in which insurers will allow an insured to pay any missed premiums so as to reinstate the policy, usually without any steps to take to confirm that you are still insurable under the policy (although some insurers will use this as an excuse to get an updated paramedical examination completed).
Failure by a doctor or coroner to accurately reflect in their clinical records the cause of death can result in a denial of life insurance benefits as well. Medical practitioners are often more focused on the “bigger picture” which works well in the medical context. However, insurance is a legal, in particular contractual, area and the fine print and exact details matter. Often if life insurance benefits are denied for this reason you can have the coroner or doctor clarify their position in a letter to the insurance company to get the benefits paid.
Life Insurance Claims & Timelines
If your life insurance claim has been denied there are strict timelines in which you have to start a lawsuit. Once these timelines pass there is almost always nothing you can do to get past this and your right to enforce your insurance benefits through the courts is gone for good.
If you believe your legitimate life insurance claim has been denied contact the experienced insurance denial lawyers at Taylor & Blair LLP today.