Life insurance is usually purchased to make sure a beneficiary has some financial means if the policyholder should die. Life insurance contracts promise to pay a beneficiary in a timely manner upon proof of death and compliance with policy terms and conditions.
However, because insurance companies would rather not pay out any more than is necessary, they will look very closely at the circumstances of the policyholder’s death and try to determine if there is any way to avoid paying the life insurance benefit.
Life insurance companies are heavily regulated in Texas and are expected to evaluate claims in good faith and deal fairly with claimants. When companies unfairly delay or deny legitimate claims, beneficiaries have the right to challenge those decisions.
Why Insurance Companies Deny Life Insurance Claims
Companies reserve the right to deny paying life insurance benefits if certain policy conditions are not met by the policyholder or the beneficiaries. When a life insurance company denies a claim for benefits it is usually for one of the following reasons:
- Premium payments were not made: If the policyholder missed paying the premiums, the policy may have lapsed. However, if only a payment or two were recently missed, there may be a window of opportunity to resolve the matter.
- Death occurred under contestable circumstances: Contestable circumstances are one of the most common reasons for a life insurance claim denial. Every policy is different and may have unique exclusions or specific contestable timeframes. Generally, if a person’s death is ruled a suicide or they were involved in illegal activity at the time of death, a life insurance policy claim may be denied.
- Information was misrepresented on the application for coverage: In some cases, a claim may be denied if the information on the application is thought to be false. For example, if the policyholder inflated their income or failed to disclose any prior health concerns.
- Exclusion of coverage applies: Life insurance policies will cover most forms of death. However, many policies will exclude certain high-risk behaviors and activities. For example, a policy may not cover death attributed to substance abuse or skydiving.
Speaking to an experienced life insurance lawyer can help you understand the details of your denial and pursue any opportunity to appeal the decision.
Life Insurance Claims Denied During the Contestability Period
Life insurance policies in Texas have a two-year contestability period. That means if a policyholder dies within two years of purchasing a life insurance policy, the issuing insurance company has the right to investigate the circumstances of the death and may be able to deny paying benefits.
The contestability period is intended to give insurance companies the opportunity to detect fraudulent claims. There is also a standard exclusion in life insurance policies denying coverage if a policyholder dies by suicide during the contestability period. A life insurance claim might also be denied if it is discovered that the policyholder provided inaccurate information on the application for coverage.
Once the contestability period has expired, the only way an insurance company can legally deny paying benefits other than for non-payment of premiums or an applicable policy exclusion is to show the policyholder intentionally provided false information that was significant to underwriting the risk.
Life Insurance Claim Denial for Misrepresentation on the Application for Coverage
The Texas Insurance Code says a misrepresentation on a life insurance application will not void coverage unless:
- It is of a material fact
- It affects the risks assumed
Material facts with regard to life insurance will be the personal information requested on the life insurance application. Risks are rated based on the answers given. If the information provided is inaccurate, the appropriate premiums will not be charged, and a risk may be underwritten that would not otherwise be eligible for coverage.
The law further states that a life insurance claim cannot be denied based on a misrepresentation in the application after the two-year contestability period unless the misrepresentation was:
- Material to the risk; and
- Intentionally made
The specific requirement that a misrepresentation be intentional to void a life insurance claim after the contestability period led some insurance companies to believe a misrepresentation during the contestability period only had to be material to the risk in order to deny a life insurance claim.
The Texas Supreme Court recently clarified the issue of an applicant’s intent when misrepresentations are made in life insurance applications in an opinion published on April 28, 2023:
“Adhering to our precedent, we therefore hold that insurers must plead and prove intent to deceive to avoid contractual liability based on a misrepresentation in an application for life insurance, whether the policy is contestable or not.”
Thus, a life insurance claim cannot be denied at any time for a misrepresentation in the insurance application unless it can be proven the misrepresentation was made with the intent to deceive the insurance company into issuing the policy.
Typical Exclusions of Coverage in Life Insurance Policies
Texas law allows life insurance companies to settle life insurance claims for less than the face amount of the policy when a policyholder’s death occurs in any of the following ways:
- By suicide during the contestability period
- Engaging in a hazardous occupation
- Engaging in aviation activities
The occupations which are considered hazardous and the prohibited aviation activities must be explicitly stated in the policy.
How to Challenge an Insurance Company when a Life Insurance Claim is Denied
When a life insurance claim is made, it means someone has died, and often family members are still struggling with their loss when they receive the claim denial. The insurance company’s actions can cause additional suffering during an already difficult time. The beneficiaries can usually appeal the insurance company’s decision but will have to provide additional evidence to get the insurance company to change its position.
Insurance companies are required to provide written reasons for denying coverage. If the reason for the denial is non-payment of premiums, the insurance company likely has the right to deny coverage. Similarly, if the cause of death is excluded by the policy terms, the insurance company may have a valid reason for rejecting the claim. Challenging these denials requires a detailed investigation into the circumstances and the help of an experience life insurance claims denial lawyer.
Claiming the policyholder misrepresented information in the insurance application is a common reason given by life insurance companies when denying a claim. But in order to avoid paying a life insurance claim, the misrepresentation must be both material (related to the risk being underwritten) and intentional (wanting the insurance company to rely on the false information).
Proving the mental state of someone who is unavailable to question can be difficult for an insurance company, and the evidence must be compelling for a court to rule in favor of denying payment of life insurance benefits.
Courts and juries don’t like insurance companies trying to get out of paying covered claims. Unless the misrepresented information would have caused the insurance company to decline the risk in the first place, a life insurance benefit will likely be payable less any additional premium that would have been charged if the insurer had accurate information when assessing the risk.
Don’t Risk Losing Life Insurance Benefits
Life insurance proceeds are often needed to provide for surviving family members. Delays and denials by insurance companies can cause unnecessary hardships and may indicate an insurance company acted in bad faith.
A Houston insurance litigation attorney whose practice is to help beneficiaries who have had life insurance claims denied knows how to investigate the reasons given for denial and get the information necessary to persuade an insurance company to pay a legitimate life insurance claim without further delay. Contact us today and find out how Berg Plummer Johnson & Raval, LLP can help with your denied life insurance claim.