Why Term Life Insurance Claims Are Rejected

A Quick Refresher: What Is Term Life Insurance?

Term life insurance is coverage for a specific number of years, for example, for 10 years, 20 years or 30 years. When or if you die during the term, your beneficiaries will receive a tax-free payment. It’s one of the most affordable forms of life insurance and term coverage.

However, for the payment to go smoothly, everything must be done correctly, from the application to paperwork at the time of the claim.

Here are the most frequent reasons claims are denied by insurers in Canada and how to make sure it doesn’t happen to you.

1. Misrepresentation on the Application

This is the most frequent and preventable reason. If there is an error(s) or omission(s) on your application with respect to your health, lifestyle, smoking status, or health history, there is a basis for the insurance company to deny the claim.

Even minor omissions, such as failing to mention an old diagnosis or minimizing the extent of alcohol use, can lead to cancellation during the contestability period (typically the first two years of the policy).

At Wiseconomy, we always look at your application, line by line, to ensure that you are approaching us with complete honesty.

2. Non-Disclosure of Pre-Existing Conditions

In order to get term life insurance in Canada, you do not have to be in perfect health, but you do have to report everything honestly. As mentioned before, if you had a pre-existing medical condition and failed to report it, and that specific medical condition is found to be associated with the cause of death, the claim can be denied.

Even if you ultimately deemed the condition as not serious at the time, an unreported health condition can cause an issue at the time claim of your policy.

3. Policy Lapse Due to Missed Payments

If premiums are unpaid, and the policy has lapsed, the insurer has no obligation to pay. This can happen without you realizing, for example, if you change banks, or forget to respond to the notice about the payment due.

At Wiseconomy, we assist our clients by setting up automatic payments and sending out reminders to help avoid unintentional lapsing.

4. Death Occurred Outside of Coverage Term

There is no payout if death occurs after your policy term has expired and you did not renew or convert it. Many people in the market become confused with term versus permanent life insurance, because they are under the impression that they are always covered. However, for a term, you are only covered until the end of the term (unless you have renewed or converted the insurance).

When you obtain term life insurance, we will always walk you through your terms of coverage. In addition, we review your policies many years in advance of expiry, to avoid any lapses in protection.

5. Excluded Causes of Death

Most term and life insurance policies exclude certain causes of death, such as:

• Suicide within the first 2 years of the policy
• Death as a consequence of criminal acts;
• Death occurring while participating in certain risky activities (not disclosed on the application) (e.g., parachuting).
• These exclusions will be noted in your policy. We make sure that you know exactly what is and what isn’t covered.

6. Incorrect Beneficiary Information

This may seem like a small detail, but if the beneficiary information is missing, unclear, or out of date, it can complicate or delay payout.

We encourage you to update your term life insurance documents on a regular basis after a life event like marriage, divorce, or the birth of a child.

Here is what we at Wiseconomy recommend to ensure that your loved ones receive the support you intended for them:

• Be 100% honest on your application, no matter how insignificant the detail.
• Provide full medical history as asked on the application.
• Always make payments on time.
• Understand your term life insurance, particularly renewal or conversion deadlines.
• Review and update beneficiary designations after a major life event.

We encourage you to ask questions. We help you understand every clause and condition.

Term life insurance in Canada is an incredible tool to help protect your family. Provided your policy is active, correct, and you know exactly what you’re getting. That’s where we come into play.

The timing we take at Wiseconomy to explain the difference between term insurance and permanent life insurance and make sure what you are purchasing is not just approved as a plan but a payer when you need it the most.