What Are the Reasons Life Insurance Won't Pay Out?

Find Out the Reasons Why a Life Insurance Policy Won't Pay Out.
By Mike Parker
Updated Sep 4, 2022
A life insurance agent that is reviewing why a clients claim was denied.
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The denial of a life insurance claim can add to the pain of losing a loved one. This is because many rely on this money to fill the financial gap caused by their loss.

Fortunately, life insurance almost always pays out as planned. A report from the American Council of Life Insurers (ACLI) says that less than one in 200 (0.5%) of claims are denied.

In this article, we will discuss the reasons why life insurance claims might be denied and how to lower the risks. 

What Is Life Insurance?

Life insurance is a type of long-term coverage that insures a person’s life. Life insurance policies are contracts between policyholders and life insurance companies. 

A policyholder (the person covered by the life insurance policy) pays a monthly or annual premium for the life insurance company (the insurer offering coverage). 

In exchange, the life insurance company promises to pay out a death benefit to the insured person’s beneficiaries when they die.

Terms You Should Know:

Death Benefit: The amount of money that will be paid out to a policyholder’s beneficiaries when they die.

Premium: A regular payment made to an life insurance company in exchange for life insurance coverage.

Policyholder: The person who is insured by a life insurance contract.

Life Insurance Beneficiary: A nominated person who will receive a portion of or the full  insurance contract’s death benefit.

Cash value: A cash value account is a type of savings account that policyholders with permanent life insurance can use to build up additional wealth through their policy.

Whole vs. Term Life Insurance

There are two main types of life insurance policies: term and whole life insurance.

TermWhole Life
Term life plan only offers coverage for a fixed period of time.Whole life insurance offers coverage for your whole life.
The coverage will only last as long as the set number of years agreed upon in the contract.The coverage never expires as long as you keep making your premium payments.
There is no “cash value.”It provides some “cash value” in addition to the death benefit.
You can increase the death benefit.You can’t increase the death benefit.
The death benefit is generally paid out income tax-free.The death benefit is generally paid out income tax-free.
Because there is no cash value, it does not accumulate on a tax-deferred basis.The cash value does accumulate on a tax-deferred basis.
Because there is no cash value, you can’t access it on a tax-advantaged basis.You can access the cash value of the policy on a tax-advantaged basis.

Denied vs. Delayed Claim

Life insurance claims can be paid out, denied, or delayed for a variety of reasons.

With a denied claim, the responding insurance company is refusing to pay for the requested damages at that time. 

However, it is not final and can be changed. With some convincing or further investigation, an insurance company can reverse its denial and pay some or all of the damages noted in the claim.

A delayed claim is a claim that has not been paid or denied after all the necessary documents were submitted to the insurer. 

Beneficiaries need to know that unless they take action, a life insurance claim may be delayed for several years.

A person taking action to ensure their claim is not delayed.

Source: Pexels

Reasons for Claim Denials

Knowing what your policy entails and how it works is just as important as having one. Here are a few reasons why your life insurance may not pay out:

The Policyholder Outlives Their Term Life Insurance Policy

Because term insurance lasts for a set time period, coverage is often taken out with the idea that the beneficiaries will have grown and become financially independent by the time the policy runs out.

However, this is not always the case. Generally, when the term insurance policy comes to an end, nothing happens.

If the policyholder dies within the term period, the policy coverage along with benefits is paid out to the beneficiaries.

However, if the policyholder survives, nothing is paid out.

If the policyholder outlives their term policy, nothing is paid out unless you take the following steps in advance:

  • Extend your coverage.

  • Convert term to whole life policy.

  • Buy a new policy.

  • Drop your life insurance.

Premiums Are Not Paid or There Is a Lapse in Payment

In order for a life insurance policy to be valid, the premiums must be paid on time. If a premium payment is late or not paid at all, the policy may be canceled or lapsed.

However, if you don't pay your life insurance premiums on time, most life insurance companies give you a 30- or 60-day grace period. 

To avoid this situation, policyholders should think about setting up auto-payments for their insurance policies.


After the incontestability period, the life insurance company can prove insurance fraud to deny a claim.

Insurance fraud is a “specific” intent crime. This means that the prosecutor must show that the person who defrauded knew what they were doing was wrong.

Life insurance is a type of contract, and as with any contract, fraud can make the whole agreement invalid.

If you make material misrepresentations with the goal of defrauding or helping someone else do the same, you may also be guilty of insurance fraud, which is a crime.

What is Fraud?

Fraud is when one person illegally obtains money from someone else by means of deception.

A Life Insurance denying a claim due to insurance fraud.

Source: Pexels

Withholding Information on an Application

A life insurance company will look at the events that led to the death of a policyholder and compare them to the application they filled out when they first bought the policy.

The insurer might not pay out if they think that the policyholder was dishonest on their application. Misrepresentations can range from not sharing a health condition to involvement in dangerous activities.

The misrepresentation has to be "material" for a life insurance company to reject a claim.

This means that if the insurer had known the full information they would have changed the policy's terms or have been unwilling to issue it in the first place.

The life insurance company has two options if they find out you misrepresented facts on your application:

  • They can figure out how much you should have paid in premiums based on the new facts, and cut the death benefit by that amount.

  • They can deny the claim.

How the situation is handled depends on the:

  • State laws.

  • Size of the claim.

  • How serious the misrepresentation was.

There Was No Beneficiary on File

As strange as it may seem, there are a few reasons why a beneficiary might not be on file, such as:

  • Not naming a secondary and final beneficiary: If the primary beneficiary dies before the policyholder and no secondary or final beneficiary is named, there is no life insurance beneficiary designation.

  • Divorce: Some state laws require an ex-spouse to be removed as a beneficiary automatically if a couple splits up. Therefore, in the event of a divorce, the policyholder would have to remove the ex-spouse as a beneficiary.

In the event that there is no designated beneficiary, life insurance companies pay out based on the law of the state where the policy is taken out.

Often the payment goes to the estate. However, this can take a long time and cause many problems. 

For example, multiple beneficiaries can have disputes about what they are owed.

Every time there are big changes in a person's life, they should examine their beneficiaries and make changes if they need to.

Other Factors That Will Cause Life Insurance Claims to Be Denied

The Cause of Death is Not Covered

Every life insurance policy has a list of “exclusions” that the policy doesn't cover. 

These are very carefully worded by life insurance companies to cover a wide range of possible scenarios why they might not pay out on a life insurance policy.

Below are examples of causes of death used by insurers to not pay out death benefits:


A common reason that a life insurance policy won't pay out is if the person dies by taking their own life.

Most life insurance providers include a suicide clause in their life insurance policies. This provision is an incontestability clause, which means that the insurance company can look into and deny claims for a certain amount of time before they have to pay out.

The contestability clause allows the insurer to delay payment and contest the cause of death.

The suicide clause is a waiting period that prevents policyholders from committing suicide within a certain time frame (usually two years) of signing their contract.

What Is a Contestability Period?

This clause ensures that insurance companies can't refuse to pay out the money or cancel the policy after two years for any reason except nonpayment of premiums.

Drug or Alcohol Abuse

Life insurance companies usually don't pay out claims that were caused by alcohol or drug abuse because they classify them as self-inflicted.

However, this exclusion can be misleading because it can cover any death that happens while the person is under the influence of illegal drugs, even if the cause of death is not related to the use of these drugs.

For example, if a person dies at a music festival while under the influence of drugs, the insurer would not payout, even though the person had no intention to end their own life.

In this case, a denied life insurance claim can be contested if the death was due to an accidental drug or alcohol overdose.


Most life insurance policies don't cover murder, but there are a few exceptions to this rule. 

An insurance company will not pay out claims of a murdered policyholder if the accused murderer is a beneficiary of the policy.

They would wait for the investigation to conclude and only pay out a death benefit if the beneficiary is found innocent.

Similarly, life insurance companies may not pay a life insurance claim if the policyholder was killed while doing something illegal, unlawful, or criminal.

Dangerous Activities

You might have heard about professional athletes having a clause in their contract that states that they may not engage in dangerous activities, which may include, for example, skydiving and riding motorcycles.

A life insurance policy works the same way, seeing as it's all about risk management.

For example, if you're going to jump out of an airplane with a parachute on your back, you're more at risk than the person on the ground.

When your insurance provider asks you about your risky hobbies or lifestyle, it's best to be honest. 

If you participate in any of the dangerous activities listed on the application, you are still allowed to do it, you'll just have to pay extra to be insured.

A person that has to pay extra because they are participating in a dangerous activity.

Source: Pexels

Living Outside of the United States

If you take out life insurance while you're living in the U.S. and then move to another country, the policy might say that if you die while not living in the US, the policy won't pay out your death benefit.

Be sure to look for any mention of this in your contract, especially if you plan to move out of the country in the next few years.

The Beneficiary on the Policy Is a Minor

Life insurance claims may be delayed when a person names a minor child as a beneficiary because a minor can't get the money without a guardian.

A life insurance lawyer or life insurance attorney can help you get your claim paid quickly by making sure that the correct guardianship documents are filed with the court.

How to Minimize the Risk of Denial

There are many ways you can decrease the chance that your claim will be denied. However, if you manage your life insurance policy you can make sure that your beneficiaries will have their claims paid out quickly.

Here are some tips to ensure that your life insurance claims won’t be denied:

  • Choose a life insurance company with strong financial health:

    • There are three important indicators: net income, combined ratio, and policyholder surplus.

  • Complete your life insurance application fully and honestly:

    • If there are no signs of misrepresentations on your life insurance application, the chances of a denied claim are very low.

  • Read your insurance policy offer carefully:

    • There may be sections in the fine print stipulating all the reasons for a denied claim that will be important.

  • Keep up with your premium payments:

    • If you miss premium payments, your policy will lapse and you will no longer be able to claim any benefits.

Where Can I Learn More about Life Insurance?

Life insurance is very important and no one wants to find themselves in a situation where their beneficiaries do not get their death benefit due to a technicality.

If you’re still unsure about what might cause a denied life insurance death benefit claim, get in touch with one of our professional consultants for personal and detailed advice. Send us an email at help@policyscout.com or give us a call at 1-888-912-2132.

For more information, insurance quotes, and to get the process started, visit PolicyScout today.