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Why are Life Insurance Claims Not Paid?

life insurance rejection hurts your familly

If you’re thinking about taking out life insurance, I get that you have concerns about the likelihood of a successful payout.

None of us trust insurance companies that much, the feckers always seem to be on the look-out for a way- out.

Have you read through the Terms And Conditions – legalese and jargon, clear as mud and impossible to decipher?

We’ve all heard the horror stories of declined claims for car and house insurance, but thankfully these are very few and far between in life insurance.

Out of every 100 life insurance claims, how many do you think the insurers decline each year?

Take a guess.

If you say 10, you’re wrong

Try again.

5 you say….you’re getting closer.

If you said 2 to 3, ding, ding, ding, you’re the winner!

That means around 98% of all death claims are paid every year.

In fact, in 2019, one of our insurers paid out 99.7% of total claims:

royal london claims 2019

But what about the 2% of life insurance claims that aren’t paid?

I think we can safely say that it’s rare for a life insurance claim to be rejected,  virtually all death claims are paid in full.

As the insurers say:

We pay 100% of valid claims

For the tiny proportion of life insurance claims that the insurers do decline, there are two reasons:

Non-disclosure (telling porkies, like saying you don’t smoke when your medical report says otherwise) or fraud (trying to pull a fast one) when applying for your policy.

1. Non Disclosure (not telling the whole truth on your application)

The insurers reject a tiny amount of life insurance claims because of non-disclosure.

An insurance contract is a “contract of utmost good faith”, which means that you must tell the truth, the whole truth and nothing but the truth so help you, God.

You must disclose all facts that are “material” (relevant) to your application. This isn’t rocket science, simply answer all the questions on the application form truthfully and you won’t have an issue at claims stage.

If the insurer doesn’t ask you specifically about a health condition, you don’t have to disclose it. The insurance company should have made their application water-tight, if they didn’t and they reject your claim, we’ll see them in court (well, you won’t if you’re dead like, but your family will see them in court – you can just haunt them).

When you apply for life insurance with us, we’ll make sure you tell the truth.

We’re pernickety, punctilious, particular and pretty effing annoying when it comes to making sure you complete the application form correctly.

If you don’t feel the same, then we won’t be a good fit.

The last thing I want is an issue if you need to claim.

You’ll be gone, I’ll be left with your grieving family trying to explain why you didn’t disclose your family history of heart problems, and because of that there won’t be a life insurance payout so little Timmy will have to go working down the mine.

You buy life to give yourself and your family peace of mind. Our raison d’etre (ooh la la) is to make sure that if the worst did happen, that your family is protected, and if a claim is made, that it’s paid out quickly.

If our process for making sure your cover is kosher adds some time to your application, we’re ok with that and I hope you are too…otherwise, you’re probably better off applying elsewhere.

What are material facts?

Anything that the dudes in the dungeon (underwriting) think would affect your life insurance application:

  • medical history
  • family history
  • lifestyle (smoking, drinking)
  • occupation
  • age
  • pastimes

The insurer takes you at your word and won’t double-check with your GP about any information you give. Don’t assume “sure it’ll be grand, my GP knows everything”. You’d be shocked at how little information is on your GP file especially if you’ve seen a few consultants in your time. Not all consultants send their reports to your GP!

So if you don’t tell the whole truth, your application could be treated as void from the start, your premiums refunded and your life insurance claim rejected.

If you’re in doubt as to whether something is relevant, tell me and I’ll find out before you apply.

2. Fraud

Fraud happens when someone submits a fake life insurance claim.

It’s usually a deliberate act by the policyholder who is not, in fact, deceased or terminally ill. Do you remember the Darwins?

Fraud is rare but can happen, examples include:

  • Falsifying medical reports to support a life insurance claim.
  • Taking out multiple high-value policies with various insurers and keeping schtum about it (if you take out more than €5m in cover from a number of insurers, you have to tell each insurer when you apply)

6 examples of life insurance claims which were not paid:

  1. Claimant suffered a heart attack – claim refused due to non-disclosure of diabetes and blood pressure medication at the application stage.
  2. Death by lung cancer – person said they were a non-smoker, in fact, they were smoking 20 per day according to GP report.
  3. The customer died by suicide – she didn’t disclose a history of recent in-patient treatment for depression
  4. The insured applied for life insurance and died five months later. However, they had not shared information about being hospitalised due to high blood pressure a month before taking about their policy.
  5. Another customer had said they had not been given advice about their alcohol intake, but medical evidence showed they had been advised to attend Alcoholics Anonymous and suffered from alcohol-related liver damage.
  6. The claim was refused because the customer did not disclose they were undergoing tests for bowel problems. Had the customer shared this information, the insurer would have offered at a higher price.

The insurers are seeing a lot more non-disclosure in relation to alcohol consumption so be careful when answering the question.

What if the death claim is unrelated to the non-disclosure?

Sometimes I’m asked something along the lines of:

What if I lie about being a smoker but die in a car crash? Will my life insurance claim be rejected.

Probably not, but the insurer is within their rights to do so, and believe me the stricter insurers will decline.

You see, it all goes back to “material facts”.

If the underwriters knew you were a smoker, they would have increased your premium.

The fact you were paying a lower premium gives the insurer grounds for voiding your policy ab initio (ooh la la part deux). It’s as if your policy never existed.

Insurers are in the business of paying claims so in this case because the non-disclosure was unrelated to the death, the insurer will more than likely make a full payout.

Will non disclosure always void my life insurance claim?

Not always.

There was a recent case of a client who took his own life.

The insurer found that he had a history of depression that pre-dated his application.

So depression should have been disclosed on his application form.

You might think that the insurer would automatically weasel out of paying the claim on grounds of non disclosure.

But rejecting claims is bad for business, the insurers want to pay claims.

They don’t want the bad publicity (nor the breakdown of the relationship with their broker) that goes with rejecting claims.

In this case the insurer took the view that even though the client didn’t disclose depression, it was mild depression and wouldn’t have affected the client’s premium had it been disclosed.

They paid the claim in full.

So you see, they’re not as bad as you think!

Here’s the truth…

Life insurance companies are not out to reject claims, in fact they’ll do all they can to pay life insurance claims.

However, if you deliberately and fraudulently mislead the insurer, they will do all they can to fight the claim.

Leaving out information or not answering all the questions in full, honestly and to the best of your knowledge, could prove costly if you need to make a claim. Keep this in mind before walking through your answers again – there may be more information that, on reflection, you need to add. Better to include too much information than not enough.

If the information doesn’t affect your application – excellent.

If it does affect your application, it also would have affected any claim had you not disclosed it.

If you’re in doubt whether a medical issue in relevant, tell me, I’ll run it by all six insurers and we’ll apply to the most sympathetic.

Complete this questionnaire and I’ll be right back.

Nick McGowan | making life insurance easier

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