Can an insurance company deny a life insurance payout?

If a person has only made 2 payments on a life insurance policy, is it justified for the insurance company to deny a payout? My uncle had only made 2 payments to the policy before he passed. We are now hearing that the insurance will not payout because it hasn't been at least 2 years.

Life Insurance
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August 2016

I'm sorry for your loss, and sorry you are going through this process with an insurance company.

Sadly, there are some companies out there that do make it harder to collect benefits on their policies.

You mentioned that two payments were made on the policy, approved and delivered, which means the coverage was in force. If, on the other hand, this person has made two payments to the insurance, but died during underwriting from an ailment, that would have caused the application to be denied. I wouldn't expect the insurance company to pay.

Fast forward, assuming this person dies from something other than an undisclosed illness, then you should expect to receive the benefits of the policy.   Especially if this is a good sized policy, I would expect many insurance companies will go back through the application, to make sure NO information was left off, or misrepresented by the applicant. They may try and get out of paying with even a small "white lie," or small omission.

As you surely have heard numerous times, there is a two year contestability period on almost all policies, so expect some pushback from the insurance company. But if you feel you are due the policy benefits, contact an attorney or the department of insurance of the state where the policy was issued.

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Best of Luck.

David Rae, CFP

July 2016
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