Wealth Strategies: Caution - When Can an Insurance Death Benefit Claim Be Denied?

The main goal of insurance is for the coverage to be paid to a deemed beneficiary and/or loved one to alleviate liability and/or risk. But what if the claim is denied? This could potentially lead to a catastrophic financial situation. So how can you ensure you’re never in this position?

The primary goal of life insurance is to alleviate liability, or risk, via a successful claim paid out to a beneficiary or loved one. But if the claim is denied, this could potentially lead to a catastrophic financial situation. So how can you ensure a positive outcome?

Honesty is ultimately the best policy in this instance.

Insurance contracts contain a contestability clause and suicide clause which are in force for a period of two years. This means that, within the first two years of the policy, the insurer can cancel or rescind the policy if the insured person made an error in the personal information provided during the application process - regardless of intent - or in the case of suicide. After the two-year time frame ends, the insurer can only cancel the policy if the incorrect information given intentionally fraudulent.

Keep this in mind when replacing an existing policy with a new one, as the contestability and suicide clause period would start fresh at the date the new policy is issued. This reset generally doesn't apply for policy conversions, however, as these are considered extensions of the existing policy.

Failing to declare a medical appointment from which a subsequent diagnosis is expected could lead to a policy cancellation or denied claim down the road. Likewise, omitting a known health condition or diagnosis could also put a future claim in jeopardy.

Another common oversight is failing to provide details of activities that are deemed to be high risk. This may be due to the applicant's fear of being assigned higher premiums upon approval, but not disclosing these details could put the entire contract at risk. It makes good sense to be forthright at the outset about any high-risk activities, to avoid any future coverage or claim issues.

Additionally, some applicants might be tempted to check the "non-smoker" box on their insurance application, though they are indeed a smoker, based on the insurer's definition. The "smoker" designation has gotten somewhat more complicated in recent years, and now includes a vast array of products such as vapes, patches, etc., so being thorough in this area is crucial. A social or casual smoker is most definitely still deemed a smoker in the eyes of the insurer, and therefore smoker premium rates would apply. In order to remove the smoker designation, the applicant must have completed a period of twelve consecutive months without using any of the specified products whatsoever. Any usage during that time would roll the clock back to day one.

In short, it pays to be transparent and thorough when providing information to a potential insurer, to ensure a positive outcome over the life of your policy.

 

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DISCLAIMER: This article is written by Korina Fandrick, licensed Insurance Agent in Alberta. Opinions and estimates are written as of the date of this report and may change without notice. Any commentaries, reports or other content are provided for your information only and are not considered investment advice. Readers should not act on this information without first consulting their licensed insurance advisor. This communication is intended for Canadian residents only and does not constitute as an offer or solicitation by anyone in any jurisdiction in which such an offer is not allowed.