If Someone Sign Up For Life Insurance Now, And Their Health Goes Bad In 20 Years, Can The Claim Be Denied?
Posted November 9, 2009 – 10:28 am in: structured settlements FAQLets say I open my life insurance policy now and fill out the application correct and everything truthfully.
20 years from now, my health is crap. Lets say I have diabetes, heart problems, high blood pressure, so on and so on. Then lets say I die…
Can the life insurance claim be denied because of this?
3 Comments
Please ignore BSherman. First of all, you don’t have to concern yourself with a denial for any reason after either two or three years (depending on the state) of owning the policy. This is known as the “contestibility period,” and is governed by state law. After the completion of this period, a death claim cannot be denied for ANY reason, to include fraud or suicide. You can walk right up to the insurance examiner’s desk and put a bullet in your brain right in front of him, and the company will pay the claim.
Secondly, and more importantly, insurance companies NEVER avoid paying legitimate claims. This is particularly true of life insurance, where death is the only criterion upon which a claim is based. Claims payment is actuarial. It doesn’t matter how many claims a company pays; it’s all very carefully and reliably calculated, and the company still makes pretty much the exact profit they planned. The amount of the claim is irrelevant as well, as the risk to the company is directly proportional to the premium they’re charging you.
Finally, in US history, an insurance company insolvency has NEVER resulted in nonpayment of a death claim. Between reserve requirements, state guaranty funds, and the financial incentive for other companies to buy undervalued paper, the safety net has proven itself virtually impenetrable.
Finally, the previous poster states that “some people believe that it is better to simply put the money, which you would have put into life insurance premiums, into a bank account instead.” This is known as self-insuring, and should be everyone’s eventual goal. If you die, and your family needs $500,000 to carry on, then you should have $500,000 cash in the bank. Don’t have it? I guess that’s why you need life insurance. Wow!
In theory, so long as you have been truthful in your application and paid your premiums, then you should be covered.
In reality, it’s not so simple. The dirty secret of the life insurance industry is that insurers look for any possible way to deny payment, especially of larger claims. A $5,000 policy will be paid automatically, but a $50,000 or larger claim will be investigated with an eye toward weaseling out of the responsibility.
Another issue is the viability of the insurance company itself. What happens to the policies of an insurance company that goes out of business? Who pays claims then?
Some people believe that it is better to simply put the money, which you would have put into life insurance premiums, into a bank account instead. In any event, do your homework before purchasing life insurance, so you know what you are getting into.
BSherman is wrong and RC is right.
The insurance policy contestibility period is only 2 years. After that if anything happens or changes you are covered.