The Shocking List of Reasons Life Insurance Won’t Pay Out

Key Takeaways: 

  • Dying within two years after buying a life insurance policy is one of the reasons you won’t get a payout
  • Lying on your application puts you at risk of not getting a payout 
  • Life insurance companies do pay out 

You have life insurance to protect your family from financial hardships when you’re gone, but unfortunately, situations arise in which life insurance won’t pay out. Understanding these reasons is crucial to avoid making a mistake that could rob your family of financial security. 

It’s worth noting that the likelihood that life insurance won’t pay out is rare, though not impossible. Being honest on your application and paying your premiums means you shouldn’t face any real issues when making a claim. 

The two most common fears are that the insurance company will decline their claim outright or the insurance company will go under without remitting payments. Both scenarios, thankfully, are unlikely. 

Insurance companies run under government regulation and monitoring. They hold large capital reserves to cover the policies they provide, which means they always have enough to protect your policy if the unexpected happens to them, such as going bankrupt. 

This guide will look at the reasons life insurance won’t pay out. Armed with this information, you’ll know what to do and what not to do when looking for life insurance. 

1. Dying Right After Getting Life Insurance

A life insurance two-year clause is one of the reasons life insurance may not pay out. Under this clause, the insurance company has a right not to pay your beneficiaries if you lose your life within the first two years of your policy. 

The clause protects insurers from fraud by allowing them to reopen your entire application and review it for any mistakes made during the underwriting period. The company may contest the claim if you lied on your application to get coverage you didn’t qualify for. The act is known as material misrepresentation

Most life insurance policies also won’t pay out if you take your own life within 12–24 months of taking out the plan. Insurance companies want to discourage people from taking out high-value policies only for them to take their lives to get their families out of debt. 

The insurer will pay out after the first year is out in some cases; however, they will reject the claim if there are details about your mental health you didn’t disclose initially. 

2. If You Die from Risky Activities or Behavior 

Engaging in high-risk activities like skydiving may put you at risk of not getting a payout if you die during the activity. Insurance companies know such activities put you – and them – at a higher risk. 

You should disclose this information when applying for life insurance. The company will classify you as a high-risk individual for life insurance, so if you fail to provide this information upfront, your beneficiaries won’t get a payout if the company realizes that you died because of the activity. 

3. You Die Due to Criminal Activities 

Your insurance company can deny your life insurance claim if you die while committing a crime or participating in illegal activities. The same happens if you die while committing a crime unknowingly, such as trespassing on private property. 

4. You Lied on Your Application for a Life Insurance Policy 

Not being truthful in your life insurance application is another reason life insurance won’t pay out. Indeed, the company may cancel your policy or raise your premiums. They may not pay the benefit if they find you falsified the details. 

This may also happen if you withhold critical information, which in some cases may be deemed fraudulent. If you claim not to be a smoker but your medical exam reveals you are, for example, that is a misrepresentation. You put yourself at financial risk if the insurance company finds it approved your application because you lied about your smoking status. 

5. Your Policy Lapses Because Your Missed Payments 

It helps to remit your premiums when they’re due to maintain the validity of your life insurance. Missing payments makes the policy lapse, meaning that the agreement ceases to be valid. The insurer can deny your death benefit if something happens to you but you have outstanding premiums. 

6. Your Death is Because of an Act of War 

It’s important to check if your life insurance policy document has an Act of War clause before you sign. The insurer will likely not pay your claim if you die because of war activities if there is an Act of War clause. Journalists who travel to a conflict location, for instance, won’t get a payout if they lose their lives in the conflict. 

7. You Move Outside the Country 

A life insurance policy purchased in the United States only remains valid if you continue living in the country. The insurance company may not honor your claim if you die while living outside the country. 

8. You Outlive Your Policy 

You or your beneficiaries won’t have anything to claim if you outlive your fixed-term life insurance policy. Your insurance company won’t pay out if you don’t pass within the fixed number of years of your policy. 

Do Life Insurance Companies Really Pay Out?

Many preconceived notions surround life insurance. Some people think it’s a waste of money, and others believe getting a payout after the policyholder dies is a hassle. 

The truth is that life insurance that pays out immediately does exist, which explains why many Americans believe in life insurance. Statistics show that life insurance coverage in America reached $19.6 trillion by the end of 2018. Insurance companies paid out more than $290 billion in benefits. 

Avoid Life Insurance Mistakes That Could Put You at Financial Risk

Be sure to familiarize yourself with the reasons life insurance won’t pay out before buying a policy so you can avoid putting your money where it won’t give any yields. A professional in insurance matters can guide you on this process and more. 

Bogart Wealth can evaluate your risk factors before you sign the life insurance policy. We can also guide you in choosing the life insurance companies that pay out. Contact Bogart Wealth to speak with an expert about your life insurance payout concerns. 

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.com
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