Are you wondering in what circumstances your life insurance payout will be denied? Worried your family might not receive the death benefit? Here are top reasons
Reasons Your Life Insurance Payout Would Get Denied in Canada
Understanding Life Insurance Payouts in Canada
Life insurance offers vital financial protection for loved ones in the event of a policyholder’s death. When a claim is approved, beneficiaries receive a lump sum or structured payout as specified in the policy. However, while most claims are approved, there are certain circumstances in which a life insurance payout can be denied.
Factors Leading to Life Insurance Denials in Canada
1. Misrepresentation on the Application
Providing false or incomplete information on a life insurance application is a common reason for claim denial. This can include inaccuracies about health history, smoking habits, lifestyle, or income. Insurers verify these details, and any discrepancies could lead to a rejection of the claim.
2. Lapsed Policy Due to Unpaid Premiums
A life insurance policy remains active only if the premiums are paid on time. If payments lapse and the policy is no longer in force at the time of the policyholder’s death, beneficiaries won’t receive the intended payout.
3. Death During the Contestability Period
The contestability period typically lasts two years from the start of the policy. During this time, the insurer can closely review claims and deny them if any misinformation or non-disclosure is discovered—even if the cause of death is covered.
4. Suicide Within the Initial Two-Year Period
Most Canadian life insurance policies have a suicide clause stating that if the policyholder dies by suicide within the first two years of the policy, the insurer will not pay the death benefit.
5. Excluded Causes of Death in the Policy
Policies often list specific exclusions where coverage does not apply. This may include deaths resulting from high-risk activities, acts of war, or illegal behavior. It’s essential to understand these exclusions when purchasing a policy.
Should Concerns About Claim Denials Be a Priority?
While the possibility of a denied claim exists, it’s not the norm. Canadian life insurance companies approve the majority of claims. Still, it’s wise to ensure all information is accurate and premiums remain up-to-date to minimize any risks.
Tips to Ensure Your Claim is Approved
1. Provide Accurate Information on the Application
Be honest and thorough when completing your life insurance application. Disclose any pre-existing medical conditions, smoking or drinking habits, and any dangerous hobbies to avoid accusations of misrepresentation later.
2. Familiarize Yourself with Policy Exclusions
Understand what your policy covers and excludes. If you engage in high-risk activities or have specific health concerns, confirm whether they are covered.
3. Maintain Timely Premium Payments
Set up automatic payments or reminders to avoid missing any premiums and risking a policy lapse.
Steps for Beneficiaries to File a Claim
When a policyholder passes away, beneficiaries should promptly notify the insurer. They will need to submit a death certificate, complete the necessary claim forms, and provide any additional documentation requested. Following the insurer’s instructions closely can help avoid delays.
What Actions to Take if a Life Insurance Claim is Rejected?
If a claim is denied, beneficiaries can request a detailed explanation from the insurer. It’s also possible to appeal the decision or seek legal advice if the rejection seems unfair. In some cases, ombudsman services or regulatory bodies can assist in resolving disputes.
Conclusion: High Likelihood of Life Insurance Payouts
Despite the potential for denials, most life insurance claims in Canada are approved. By providing accurate information and maintaining the policy, policyholders can ensure their loved ones receive the intended financial protection.
Common Questions: Situations Where Life Insurance Might Not Pay Out
How Frequently Are Claims Denied by Insurers?
In Canada, life insurance claim denial rates are relatively low, often under 2% of total claims.
What Is the Typical Life Insurance Payout in Canada?
Payout amounts vary based on the policy but can range from tens of thousands to several million dollars.
What Is the Usual Timeframe for Life Insurance Payouts?
Once a claim is approved, beneficiaries typically receive the payout within 30 to 60 days.
What Are the Deadlines for Claiming a Death Benefit?
Most insurers require claims to be filed within one to two years following the policyholder’s death.
Is Suicide Covered by Life Insurance?
Suicide is generally covered after the policy’s initial two-year contestability period.
Do Life Insurance Policies Accommodate High-Risk Lifestyles?
Policies can cover high-risk activities, but they often come with higher premiums or exclusions.
Is Drug Overdose Included in Life Insurance Coverage?
This depends on the policy and the circumstances of the overdose. Misrepresentation of substance use could lead to a denial.
Will Benefits Be Paid If Death Occurs in a Car Accident?
Yes, unless the policy specifically excludes accidental deaths or there was misrepresentation regarding driving habits.
Life Insurance Canada Advisor Contact
Life Insurance Need Not Be Complicated
Here are answers to frequently asked questions...
No, the only thing you will ever pay is a premium to the insurance company that provides the life insurance policy for you. We provide you quotes and advice on best options for your situation.
Yes, we have access to various discounts based on your health and the amount of life insurance you purchase. For example if you've never smoked in your life and are buying more than $1 million in life insurance
Rates are based on your age, health history, smoking status, gender and income. The insurance company also compares and makes assessments based on similar individuals with the same profile like age, gender, smoker status. Unlike workplace or association rates which are cheaper and based on you working at a particular company, being associate with an affinity group or the claims of the whole group i.e. your rate is affected by someone who smokes even if you don't smoke, or if you never claim and other claim multiple times, for example.
We simplify the process knowing how busy life gets. The first step is simply to request your quotes and getting a sense of the cost and coverage available. Next, we compare the policy options and other riders like guaranteed insurability and discuss what makes sense for you and answer your questions. Lastly, you apply and buy risk-free.
We are an independent life insurance broker, meaning that we do not have an affiliation with any one Canadian life insurance company. We are looking out for your best interests as we don’t have to meet any requirements to do business with any specific company. We actually get a finders fee from these insurance companies and they are all the same, so we don’t have any financial conflict of interest either.
In most cases, it can take between 2 weeks and 1 month from beginning to end. A lot of the time may depend on follow up information required by the insurance company. In our experience 1 month is usually a standard timeframe. Sometimes, depending on the amount you apply for and your age, for example children's life insurance or no medical, the approval is instant.
Underwriting is where the insurance company verifies your information that you submitted on the application your complete with us and gathers additional details such as health history, travel, and personal history to determine the best rate possible.
Any type of life insurance is great especially if you suddenly pass unexpectedly. However, just like getting a company car allowance, you only have it for as long as you work for that company because it's a benefit or "perk" of working there. When you leave you lose that perk. You are also limited to 2 or 3 times your salary which may not be enough. More importantly, how many times have you changed or will potentially change jobs?
When you buy your own personal private insurance you don't worry about losing it if you change jobs or your health changes.
As the name suggests, the AD & D policy will only pay if your death is caused by an accidental death or dismemberment of a body part. Personal private life insurance will pay regardless of the cause with the only exception being cases such as suicide.