Can a life insurance claim be denied if the insurance company finds out you lied on the application?
Life insurance claims can absolutely be denied if the insurance company finds out someone lied on his or her application. This is, however, determined by how long the person has held the policy.
The first two years of a policy is known as the “contestability period,” during which companies can contest policies and claims.
Learning About the Application
During the application process, there will likely be medical examinations and reviews of your medical records. It is possible to make it through this process unscathed because, really, the insurance company primarily depends on your application and answers to figure out your policy and premium.
If you don’t pass their medical tests, however, and if you’ve lied about something that the tests discovered, then you can be denied coverage and there will be a big mark against you in the industry.
If you apply to other companies to get life insurance, they will refer to the MIB (Medical Information Bureau, not Men In Black), the central insurance database, and see that others denied you coverage not because (or not only because) you had one risk or another, but because you lied about it. Or they’ll see that you applied to one company, and disclosed that you had a health problem that you failed to disclose on the current application this time around.
At the very least, if you’re not denied coverage entirely, you’ll still be charged the higher rates you would have gotten anyway, meaning you would have wasted a bit of time and energy.
If the Company Finds Out
If the company finds out within the first two years of the policy being opened (that contestability period) they can not only deny your claim or reduce the benefits of the policy, but they can also completely cancel the policy, without even having to refund the amount of any premiums paid. (They can do this if they wish to, but are not required to do so.)
A few things can happen when a claim is made on a fraudulent policy in this two year time. The company can deny it entirely, which means they will not pay anything toward the policy, and maybe not even any premiums that were paid on the policy.Another scenario, though, is that, depending on what you lied about, they might also decide to pay only a portion of the policy.
For instance, if you bought a non-smoker’s policy but are, in fact, a smoker, they might just pay the difference between the premiums for the two policies. Tobacco use is, in fact, the thing most often lied about on life insurance policies. Other things a person may lie about that can increase the later likelihood of ultimately getting a life insurance policy claimed denied include having a hazardous job, dangerous hobbies, or particular health risks or problems.
Can the beneficiary, then, contest the company’s decision to cancel a policy or deny a claim? Yes. This process can be very long and hard, though, for grieving or stressed families to go through.