When Does a Term Life Insurance Policy Not Pay Out?
If you own term insurance or you’re thinking about buying a term life policy you may be wondering what may give rise to no payout on your insurance.
To start, term life insurance is "temporary" coverage, which means you pay for life insurance which will last for a specific duration, usually up to 30 years.
However, you may be able to choose coverage for a period of 10, 15, 20 or 30 years depending on your age and your health status.
Since term life is temporary, it only provides protection for a certain period of time, and if you die after the "term" has ended, there is no payout on your term policy, because you did not pass away while the insurance coverage was "In Force".
However, if you (the insured person) pass away during the "term" for coverage, the death benefit is paid out to the person or persons you select as beneficiary to your policy.
Reasons Term Life Insurance Does Not Pay Out:
Insured Alive – If you are alive, you have not passed away and there is no death benefit payout.
No Claim Made – If there has been no claim made on your life insurance policy the insurer does not know of your death and they will not pay out a claim for death benefits.
Exclusions – If the insurance policy has a specific exclusion for the cause of your death.
Expired – If the death of the insured person occurred after the insurance policy expired.
Cancelled – If the life insurance policy has been cancelled prior to the insured’s death.
Policy Term – If death of the insured does not occur during dates of coverage stated in the life insurance policy.
Insurance Company Goes Bankrupt – If your life insurance company becomes Insolvent, goes Out of Business or Bankrupt, usually the state regulators will take over the company and administer the handling of all claims on the existing life insurance policies. However, depending on the financial status of the insurer, the claims may only pay out a small portion of the actual death benefits insured. And, payout of claims may take years.
When purchasing a policy make sure you review your life insurance policy term when you receive the actual life insurance policy contract, to make sure the Effective Date and Expiration Date are correct.
Expiration Date – Make sure you understand your life insurance "Policy Term" and when your coverage is "In Effect" – When coverage begins and when coverage ends. The expiration date is the date at which your life insurance coverage ends.
Can the Insurance Company Deny a Claim on My Life Insurance Policy?
Yes, the insurer may deny coverage and refuse to pay a claim for death benefits on a life insurance policy if it is determined the applicant for coverage lied about his or her health on the application, and the lie was related to a health issue which would have resulted in the insurance company declining to insure the person for life insurance.
There are a few key issues to consider relating to an insurer refusing to pay a claim:
Contestability Period – The insurer can contest any claim that occurs within the first two years you are insured.
Material Misrepresentation – Any misrepresentation of a material fact related to your health when applying for life insurance can void your insurance policy.
Insurance Fraud – Intentionally misstating your health when applying for life insurance may be subject to criminal prosecution.
What If I Need Life Insurance Beyond My Policy Term?
Renewal Option – Your term life insurance policy may include a renewable option which would allow you to renew coverage for another term, usually up to ten years, when your original policy term expires. You would not be required to prove insurability by passing a medical exam, but your renewal premium would increase, based on your age at time of renewal.
Conversion Option – Your term life insurance policy may include a conversion privilege which would allow you to convert your term insurance into a permanent life insurance policy if you contact the insurance company by a specific date stated in your policy contract and request conversion of your coverage. Your permanent life insurance premium would be much higher compared to the cost of your term insurance.
Can You Lie on the Application for Life Insurance and Get Away with It?
Example: A smoker applying for life insurance as a non-smoker
Yes, if you choose to you could lie about your smoking history and maybe get away with it for a while. Anything is possible including trying to deceive a life insurance company in regards to your use of tobacco. But there will be consequences if your smoking is discovered by the insurance company at a later date.
Failure to disclose a significant health condition is considered to be "Insurance Fraud".
Here are a few of the possible outcomes regarding Insurance Fraud:
First, you could face criminal prosecution.
More commonly, the insurer can void the life insurance policy upon discovery of your undisclosed smoking habit.
The insurance company could legally deny paying your insurance claim to your beneficiaries upon your death, if it can be determined that your death was in any way caused by tobacco usage that you failed to disclose to the insurer on your application for coverage.
The insurance company could simply refund the amount of your life insurance premiums to your beneficiaries, but not provide any funds as part of the face value of the insurance policy.
The insurance carrier can terminate your life insurance policy without warning if subsequent medical tests reveal that you are in fact a smoker, when you indicated that you weren’t.
Tobacco usage can easily be determined from a simple urine test. Tobacco usage is too easy to determine to even consider the possibility of failing to disclose it to the insurance company.
It’s far better to admit your tobacco habit, and obtain the best policy that you can get based on your actual tobacco usage.
Whether you have health issues, you’re a smoker, or have any other issues which may cause an insurer to deny you coverage or charge you a higher premium for insurance, it is never a good idea to lie on your application for life insurance coverage.
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Term Life Insurance Resources
How a Term Life Insurance Policy Works – Learn about term insurance coverage and how it works.
Term Life Insurance Needs Calculator – Determine how much life insurance you need.
Term Life Insurance No Health Exam – How to buy term insurance without taking an exam.