Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(4 minute read)
When purchasing a life insurance policy, many people do not consider the fact that there are numerous situations in which a policy will not pay out to a beneficiary. A life insurance policy, like a contract, has fine print that lists exclusions regarding specific circumstances in which the beneficiary may not receive payment in the event of the policyholder’s death.
Top 5 Reasons Life Insurance Won’t Pay Out
Life insurance can provide financial protection for loved ones in the event of the policyholder’s death. However, understanding the policy—and the fine print of the policy—is equally as important as having one. Here are five reasons life insurance won’t pay out.
Lying on a life insurance application
Lying on a life insurance application is insurance fraud, and it can cost policyholders big. It is important to be truthful about medical conditions, travel plans, family health history and even hobbies on an application for life insurance. Outright lying—or lying by exclusion—could give the insurance company all the reason they need to refuse to pay out death benefits to beneficiaries, so present everything clearly and truthfully.
Policy premiums were not paid or there was a lapse in policy
A life insurance policy is only good so long as the premiums are paid. If a premium payment is late or missed, the policy may be lapsed or terminated. However most life insurance companies do provide a 30- or 60-day grace period for payment. Policyholders might consider setting up auto-payment to avoid this scenario.
The death happened during the contestability period
Life insurance policies often contain a contestability period, or an amount of time when they have the right to contest a policy in the event of the policyholder’s death. This is typically two years from the date the policy becomes effective. This contestability period grants insurance companies the ability to investigate medical records and background information to look for information not disclosed on the application, which they could use to refuse payment. This underscores the importance of being fully transparent when filling out a life insurance application.
There was no beneficiary on file
While it may seem unusual, there are a couple of reasons why a beneficiary might not be on file.
- Not naming a secondary and final beneficiary: In the event of a policyholder’s death, the payout goes to the primary beneficiary. However, if the primary beneficiary dies before the policyholder and no secondary or final beneficiary is named, there is no designated beneficiary.
- Divorce: In some states, law requires that life insurance policies automatically remove an ex-spouse as a beneficiary. In the event of a divorce, the policyholder would have to rename the ex-spouse as a beneficiary.
In the event that there is no designated beneficiary, insurance companies pay out according to the law of the state where the policy is taken out. Payment is often to the estate. However, this can cause significant, lengthy delays. Policyholders should review beneficiaries regularly and make updates following any big life events.
The death occurred as a result of risky behaviors
Some life insurance policies have provisions or clauses in place that invalidate a policy if the death occurred while engaging in risky behaviors. These behaviors vary from policy to policy, but may include:
- Suicide during the contestability period
- Death due to drug or alcohol abuse
- Death due to homicide in certain situations, such as when the beneficiary is suspected of murdering the policyholder
- Death due to extreme hobbies, including bungee jumping or scuba diving
If you have questions about your life insurance policy contact Life Settlement Advisors to get the answers you need. Our team of experienced experts are ready to answer your questions and help you explore your options.
Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
Life Settlement Advisors