Denied Life Insurance Claims and Insurance Advisor Negligence

Why Are Life Insurance Claims Denied?

An insurer may deny or delay a claim for several reasons.

Common issues include:

• alleged non-disclosure/fraud;
• alleged misrepresentation/fraud;
• missing or incorrect medical information;
• a disputed answer on the application;
• missed premiums;
• an alleged policy lapse;
• a policy exclusion;
• the timing or cause of death;
• a beneficiary dispute;
• a policy change made before death;
• allegations of fraud;
• application or processing errors; or
• requests for further information.

Some denials are justified.

Others may rely on incomplete information, an advisor’s mistake or an incorrect interpretation of the policy.

The denial letter is the insurer’s position.

It is not necessarily the final answer.

Alleged Non-Disclosure or Misrepresentation

The insurer may claim that the policyholder gave an incorrect or incomplete answer when applying for coverage.

The issue may involve:

• medical history;
• medication;
• treatment;
• smoking or alcohol use;
• occupation;
• travel;
• finances;
• other insurance; or
• another question on the application.

A review may consider:

• what question was actually asked;
• whether the question was clear;
• what answer was given;
• who completed the application;
• whether the advisor recorded the answer correctly;
• whether the information was important to the insurer; and
• whether the insurer’s position is supported by the evidence.

Policy Lapse and Missed Premiums

An insurer may say that the policy ended because a premium was not paid.

A review may consider:

• whether the premium was actually missed;
• whether automatic payments failed;
• whether notices were properly provided;
• whether the policy contained a grace period;
• whether later payments were accepted;
• whether the policy was reinstated;
• whether an advisor knew about the problem; and
• whether an administrative error occurred.

Do not assume that a lapse allegation is correct without reviewing the payment and notice history.

Beneficiary Disputes

A dispute may arise when:

• more than one person claims the proceeds;
• the beneficiary form was incomplete;
• the beneficiary was changed shortly before death;
• the insurer questions the designation;
• a former spouse or family member makes a claim;
• an estate and named beneficiary disagree;
• the policy was assigned as security; or
• there are concerns about pressure or capacity.

These disputes can involve questions about the policyholder’s intentions and the validity of changes made before death.

What If the Insurance Advisor Made a Mistake?

The problem may have started before the claim was submitted.

An insurance advisor may have:

• completed the application incorrectly;
• failed to explain application questions;
• failed to record the policyholder’s answers;
• failed to follow up in the face of inconsistent or unlikely answers;
• failed to submit documents;
• failed to explain an exclusion;
• recommended the wrong amount or type of coverage;
• failed to conduct a proper needs analysis;
• allowed a policy to lapse;
• mishandled a beneficiary change;
• replaced an existing policy without explaining the consequences;
• used unrealistic illustrations;
• failed to explain premiums, fees or risks; or
• recommended a product that did not fit the client’s needs.

Depending on the facts, the advisor, agency, insurer or another party may bear responsibility.

Universal Life Insurance Disputes

Universal Life combines insurance coverage with an investment or savings component.

Concerns may involve:

• investment performance;
• rising insurance costs;
• premium requirements;
• policy illustrations;
• assumptions about future returns;
• policy loans;
• surrender values;
• complex and high fee investment options; or
• a policy becoming difficult or expensive to maintain.

A policy may not perform the way the client understood it would.

A review may consider what was recommended, what assumptions were used and whether the policy fit the client’s needs and finances.

Segregated Fund Losses

Segregated funds are insurance contracts that include investment features.

Concerns may arise where:

• the investment was unsuitable;
• the risks were not explained;
• the client misunderstood the guarantees;
• the fees were not clear;
• a proper needs analysis was not conducted; or
• the product did not fit the client’s financial circumstances.

Read more about private, gated and complex investment concerns.

What Documents Can Help?

Helpful records may include:

• the complete policy;
• the original application;
• the insurer’s denial letter;
• the claim form;
• premium-payment records;
• lapse or cancellation notices;
• reinstatement documents;
• beneficiary forms;
• policy-change documents;
• emails and texts;
• sales illustrations;
• needs-analysis documents;
• replacement forms;
• banking records; and
• notes about what the policyholder was told.

Keep copies of everything sent to or received from the insurer.

What Should You Do After a Denial?

Start by identifying:

• the exact reason for the denial;
• the policy term the insurer relies on;
• the information the insurer says was missing or incorrect;
• whether an advisor helped complete the application;
• whether premiums were paid;
• whether more documents have been requested;
• whether there is a beneficiary dispute; and
• when the denial was issued.

Do not allow an internal complaint process to cause you to ignore possible legal deadlines.

How Can a Life Insurance Dispute Be Resolved?

Possible steps may include:

• providing further information;
• an internal appeal or complaint;
• an ombudsman process;
• negotiation;
• mediation;
• a claim against the insurer;
• a claim against the advisor or agency; or
• litigation involving competing beneficiaries.

The right approach depends on the policy, the reason for denial and the parties involved.

Frequently Asked Questions