In some rare occasions, a life insurance pay out will be denied. This can be for a number of reasons.
Typically these include:
- Premium payments not up to date
Failure to keep up with your premium payments will lead to your policy lapsing and your cover becoming invalid.
If you pass away after you’ve stopped paying your premiums, a claim made on your policy won’t be valid and a pay out won’t be issued.
If you fall into financial difficulty and can no longer afford your cover, it can be tempting to just stop paying but this will lead to your selfless investment going to waste.
It’s important to let insurers know if you can no longer afford your premiums as they may be able to help.
The most common reason insurers won’t pay out is due to non-disclosure.
This involves being untruthful or not providing certain information at the point of application.
It can seem tempting to lie on your application in the hopes of obtaining more favourable premiums (for example, lying about being a smoker).
But this can be extremely detrimental.
If a claim is made and insurers believe there’s a case of non-disclosure, they can use the contestability clause, which could lead to a claim being declined.
The contestability clause
The contestability clause allows insurers to obtain more information about the death of the policyholder.
It refers to a period of time where insurers can further investigate the death.
This can apply to any death within the period stated by the policy (usually the first 2 years at the beginning of the policy).
For example, if a policyholder passes away due to a heart attack, the insurer has a right to request medical information and reports to determine whether or not the policyholder had underlying conditions or was a smoker but didn’t disclose this information.
If it’s found that information was withheld at the point of application, the insurer can deny the pay out.
You can read our full guide as to why insurers might not pay out.