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Life Insurance Claim Denied

Life insurance–We apply for it and pay thousands of dollars in premiums to maintain it, with the belief it will provide a financial benefit to our loved ones (or beneficiaries) when they die. Unfortunately, that is not always the case. Sometimes life insurance claims are denied, leaving beneficiaries with nothing; wondering why the claim was denied, at a time when they are still suffering the loss of their loved one. The most common questions we hear when this happens are: why was the claim denied and what can we do to fight the denial?

Why are life insurance claims denied?

Life insurance claims are usually denied because the insurance company finds information to suggest that the insured person (the deceased) misrepresented his/her medical history on the initial application. Depending on how soon the insured person died after the life insurance coverage took effect, the insurance company will argue that the misrepresentation was either innocent or fraudulent. In either case, the misrepresentation must be material to the risk; meaning, had the insurance company known certain information about the person’s health, they would not have agreed to provide the insurance coverage.

The best way to explain why some life insurance claims are denied is to provide two examples; one of fraudulent misrepresentation and the other of innocent misrepresentation.

Cindy’s father, John passed away in December. He was 70 years old and died of a heart attack. He had applied for life insurance about 10 years prior and paid his premiums without fail and his policy was in effect at the time of his death. The insurance company denied Cindy’s claim, explaining that her father had misrepresented his medical history on the application. In other words, had the insurance company known what they know now, they would not have provided him with insurance coverage.

When John applied for the insurance, he had sat down with his insurance broker and completed a form, including a health questionnaire (referred to as Evidence of Insurability). The form had many detailed questions about his medical history. The insurance broker may have asked him the questions and recorded the answers (either on her computer or on paper) and John would have gone over the questions and his answers before signing it. His insurance broker then submitted his application to the insurance company.

The insurance company referred John’s application to an underwriter whose job it was to review the application and determine whether John was an “insurable risk”; meaning whether or not it made sense for the insurance company to take on the risk of insuring John’s life in exchange for a specified cost, otherwise known as premiums.

Depending on what John disclosed about his health on his application, the underwriter had a number of options, including: decline coverage, approve coverage, approve coverage but exclude certain conditions, approve coverage in exchange for a higher premium, or wait to make a decision while gathering additional information from John or his doctors. In John’s case, the insurer issued the policy without any additional questions and John was secure in the knowledge that his daughter, Cindy would be paid the insurance proceeds, upon his death.

In completing the application, John disclosed that he had been taking medication for high blood pressure since his late 40’s. At the time of the application, he understood that his blood pressure was under control and he had not suffered any strokes or heart attacks. John had also disclosed having surgery for the removal of gallstones and a knee surgery. He failed to disclose a genetic heart defect that was discovered at a regular check-up when he was in his teens. He had not required any treatment and did not experience any symptoms as a result of the defect. John also estimated his weight on the application, not knowing what his actual weight was. He thought he might be slightly overweight but he did not recall his doctor addressing any weight issues at his check-up, prior to the application.

When John died, Cindy submitted her claim for the life insurance. In response, the insurance company requested information from John’s doctors about the circumstances of his death and also about his medical history. Upon review of those documents, the insurance company learned that a few months prior to the application, John had attended at his doctor for a regular check up and weighed in at 50 pounds overweight. His doctor had indicated that he told John to exercise more. There was no evidence of his doctor advising him to lose weight. One year prior to the application, when John went in for surgery for his knee, he advised the anesthesiologist of his genetic heart defect. The insurance company took the position that, John intentionally failed to disclose his weight and his heart defect and had the insurance company known, they would not have insured him, as he would have been at increased risk for a heart attack, which was what ultimately resulted in his death.

In John’s case, because his insurance coverage had been in effect for a long period of time (for longer than 2 years) before he died, the insurance company was required to show that the misrepresentation was fraudulent in order to deny Cindy’s claim. This is a very difficult thing for an insurance company to prove, particularly when John is no longer alive to be questioned. Had John flat-out lied on the application; denying his high blood pressure altogether, the insurer would have a much stronger basis upon which to deny his claim. The question we are left with is why John did not tell the insurance company how much he weighed or that he had a heart defect.

Consider an example of a case where a person dies shortly after her life insurance becomes effective. In this case, the insurer need only show that the misrepresentation was material. It need not find evidence of fraud.

Michael lost his mother, Sarah to cancer earlier this year. When he discovered that his

mother had life insurance, he submitted a claim. The insurance company denied the claim within a matter of days on the basis that Sarah had misrepresented her medical history on

the application.

Sarah’s insurance became effective only nine months before she died of cancer. At the time

of the application, she had not been feeling well. Although she had not been

diagnosed with cancer, she had been losing weight, she was fatigued and had frequent headaches. Although, she had headaches since she was in her 20’s, she found that her headaches had become much worse in recent months. She believed that her symptoms were due to stress. She applied for life insurance. She indicated on the application that she experienced headaches, usually once a month and did not admit to a history of any other medical conditions or symptoms. Her application was approved immediately. The next week, she collapsed and was hospitalized. On admission to hospital, Sarah described her deteriorating health to doctors. Shortly thereafter, she was diagnosed with advanced stage cancer.

The insurer took the position that at the time of the application, she should have disclosed her symptoms. Had the insurance company been aware of her symptoms and deteriorating health, it would have held off on issuing the policy while she underwent testing, the results of which would have rendered her uninsurable.

In this case, there were no medical records to support a misrepresentation. However, the insurance company

What can I do, if I am owed the proceeds of a life insurance claim?

The difficulty in these cases, is that the insured person is no longer with us and can not be a witness to the circumstances around the application.