The 5 Most Common Mistakes that Can Void Your Life Insurance Claim

The 5 Most Common Mistakes That Can Void Your Life Insurance Claim

The best way to ensure the future financial security of your family after your death is life insurance. However, if you you’re not careful, you could end up making a costly mistake. In the life insurance world, one mistake could prevent your survivors from receiving the policy pay-out they deserve. Regardless of the type of life insurance policy you have, you need to be wary of the five most common mistakes that may cost your beneficiaries their life insurance claim.

1. Lying on Your Life Insurance Application

If you’re a smoker or if you were treated for a medical condition, telling the truth on your application might hurt – in that your rates may be higher. On the other hand, lying on the application will hurt a lot more down the road. If you lie, then your policy could be found null and void. Life insurance rates use your medical history, as well as other factors like smoking, to determine your rates or whether to insure you at all. Therefore, if you are caught lying, then it is considered “material misrepresentation,” and at that point, the insurer will likely deny your application.

However, if the policy has already been issued, there’s still a two-year look-back period. During this time, insurers can contest your policy if they find out that you lied during the application. If caught, then your policy may be cancelled, or the insurers may raise your premiums.

If the lie is particularly egregious, then the insurer could consider it fraud. Meaning, even after the two-year contestability period, the policy could be rescinded.

2. Not Paying and Letting Your Policy Lapse

Don’t mistake me; just because you miss one payment doesn’t mean your policy is immediately void. Typically, life insurance companies have a 30-day grace period, and in some cases, they extend this period to 60 days. During this time, policyholders can catch up on their missed payments and not lose their policy.

If you have yet to pay your premiums even after the grace period, you can sometimes get your term policy reinstated. However, if the lapse has lasted for a considerable amount of time, then you will likely have to undergo another medical exam. As for a permanent life insurance policy, the insurance company may use the cash value of the policy to cover your missed payments; this will prevent a lapse in coverage. 

Just remember – if your policy lapses and is not in force, then your beneficiaries are out of luck when you die.

3. Failing to Tell Your Loved Ones About Your Life Insurance Policy

Don’t forget to tell your family or beneficiaries about your life insurance policy! If, however, you forget to inform them, it doesn’t mean that the insurer won’t pay them the death benefit; it just means that the process will be more difficult for them. While most life insurance companies check their database for the death of policyholders in order to issue death benefits, not all companies do it frequently. Sometimes, death benefits go uncollected for years because beneficiaries aren’t aware of the policy and insurers aren’t always diligent about tracking down survivors. Though legislation is seeking to rectify the issue by requiring life insurance companies to find the beneficiaries and issue them the death benefit, legislators have yet to pass any laws. Therefore, your beneficiaries should be aware of your policy so in the event that you die, they know where to get their check right away.

4. Forgetting to Name a Secondary and Final Beneficiary

Once you assign a beneficiary, it’s a good idea to name a secondary and a final beneficiary as well. You can never be too careful. If your primary beneficiary, such as your spouse, dies before you, then your death benefit will pass on to your second beneficiary listed. If the second beneficiary has also passed by the time of your death, then the final beneficiary receives the death benefit. However, if you fail to name a second or final beneficiary, the policy proceeds don’t vanish. They simply go towards your estate. Unfortunately, if the estate is subject to probate, then your survivors may have a long wait ahead of them.

5. Dying Due to Risky Behavior or Suicide

As aforementioned, life insurance policies have a two-year look-back period (also referred to as the exclusionary period). So if the policyholder committed suicide during this period, the beneficiary would typically not receive the policy’s face amount. Instead, they would receive the amount paid in premiums. Though it varies by insurer, companies try to discourage people who are suicidal from purchasing a life insurance policy by implementing suicide clauses.

Dying while sky-diving or riding a motorcycle may also preclude your beneficiaries from receiving the death benefit. To expound, if you don’t disclose to your insurer at the time of your application that you have a high-risk hobby, then the insurer can deny the claim if you die during said hobby. This is why it’s important to disclose everything to the insurance company during your application.

To avoid making any of these mistakes, reach out to a life insurance agent today! They can guide you through the application process. Even after the application, you should still review your policy every so often to make sure that your policy is still up-to-date. With an agent’s assistance, you should never have to worry about the validity of your life insurance claim.

Since insurance is oftentimes overwhelmingly confusing, we want to shed light on this industry by answering YOUR questions.  So if you have any questions or concerns, comment below and your question may be the topic of our next article!

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