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You're insured, you die, your policy pays, right? Not so fast p2

We are talking about life insurance policies and some of the most common reasons life insurance claims are denied. First and foremost, an insurance company will not pay a claim if there is no insurance policy. For example, if the policy has lapsed for nonpayment, the insurance company has no obligation to pay the claim.

Paid up but not paying out: A life insurance policy comes with something called a contestability period. A contestability period is a kind of insurance limbo during which you pay the premiums and the insurance company retains the right to deny the claim under certain circumstances -- circumstances that may be wholly unrelated to the cause of death.

Contestability periods typically run for two years after the date of purchase. If the insured passes away during this period, the insurance company has the right to investigate every piece of information included on the application. If the insurer discovers a misrepresentation, the claim will fail.

The standard example is the insured who failed to disclose a medical condition on the application. The insured is killed in a car accident that has nothing to do with the condition during the contestability period, so, because of the failure to disclose, the insurer denies the claim.

Once the contestability period is over, the insurer will likely overlook (or not investigate) misrepresentations like the one above. If the insurance company suspects criminal activity -- a "Double Indemnity" type plot to murder a husband for the insurance payout -- there may also be an investigation and a denial.

When is an accident not an accident?Life insurance is actually accidental death or dismemberment insurance, with the emphasis on "accidental." An insurer may not consider suicide to be an accident, so a claim could fail. However, industry insiders say that suicide is less and less treated as an exception. Insurers that do deny suicide claims tend to limit those denials to the contestability period.

Appeal a denial. If there is any question about a claim denial, beneficiaries have the right to appeal. While it may not be possible to get the full benefit, an appeal may result in repayment of premiums. The process can be confusing, so it may be wise to consult with an attorney about an appeal.

Source: InsuranceQuotes.com, "4 most common reasons why insurers deny life insurance claims," Emmet Pierce, June 1, 2015

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