15 Reasons Canadian Life Insurance Companies Deny Claims

Life insurance is meant to provide financial security for beneficiaries when a policyholder passes away. However, in some cases, life insurance claims may be denied, leaving beneficiaries in a difficult financial situation.

Understanding the reasons behind claim denials can help policyholders and beneficiaries navigate the process more effectively and avoid common pitfalls. In this article, we’ll explore 15 reasons Canadian life insurance companies may deny claims.

1. Missed Premium Payments or Policy Lapses

One of the most common reasons for life insurance claims being denied in Canada is missed premium payments. Life insurance policies require regular premium payments, and failure to pay these premiums can result in a policy lapse. When a policy lapses, it is no longer in force, and if the policyholder dies after this lapse, the beneficiaries may not receive the payout.

Policyholders should ensure that premiums are paid on time and set up automatic payments or reminders to avoid this issue.

2. Exclusionary Terms in the Policy

Life insurance policies often contain exclusionary clauses that limit the coverage in specific situations. These exclusions may include certain causes of death, such as death due to a pre-existing medical condition, risky hobbies, or criminal activities. If the cause of death falls under an exclusionary term, the insurance company may deny the claim.

It is important to review the terms and conditions of the policy to understand what is covered and what is excluded.

3. Cause of Death Not Covered by the Policy

Life insurance policies typically cover death due to natural causes or accidents. However, if the cause of death is excluded from the policy—for example, death caused by suicide within a certain period or death resulting from participation in dangerous activities—the claim may be denied.

Policyholders should carefully review the policy to understand the causes of death covered and those that are excluded.

4. Contestability Period

The contestability period is the time frame (typically two years) after the policy is issued during which the insurer can investigate and deny a claim if there is evidence of fraud or misrepresentation. During this period, the insurance company may look for discrepancies in the application or investigate the circumstances of the death. If the policyholder dies within the contestability period and the insurer discovers inaccuracies or omissions, the claim could be denied.

It is crucial for policyholders to provide accurate and complete information on their life insurance applications to avoid claim denials.

5. Fraud or Misrepresentation

If an insurance company finds that the policyholder intentionally provided false information or omitted key details on the application, they may deny the claim. Misrepresentation can include hiding pre-existing medical conditions, falsifying age, or providing incorrect information about lifestyle factors (such as smoking or alcohol consumption).

Always be honest and transparent when applying for life insurance to avoid issues down the line.

6. Suicide

Most life insurance policies have a suicide clause that excludes coverage if the policyholder takes their own life within a specified period (usually within the first two years of the policy). After the contestability period, the insurance company may pay the death benefit, but during the contestability period, suicide is often a valid reason for denying a claim.

Beneficiaries should be aware of the terms of the policy when it comes to suicide exclusions.

7. Illegitimate Beneficiary

In some cases, a life insurance claim may be denied because the beneficiary listed on the policy is deemed ineligible. This can occur if the beneficiary is a minor, an estranged relative, or a person who was involved in the death of the policyholder. Life insurance companies will investigate the legitimacy of beneficiaries to ensure the policyholder's wishes are honored.

It's important to regularly update beneficiary information to ensure the right person receives the payout.

8. Lapsed Policy

A lapsed policy occurs when the policyholder stops paying premiums, causing the policy to expire. If the policyholder dies after the policy lapses, the life insurance claim may be denied. The beneficiary will not receive the death benefit, and any premiums paid prior to the lapse are typically non-refundable.

Policyholders should ensure they keep track of their policy's status and renew it as needed.

9. Medical Conditions Under Investigation

If the policyholder dies while a medical condition is under investigation, the insurance company may deny the claim until the investigation is completed. Life insurance companies may also deny claims if the policyholder failed to disclose medical conditions that were under investigation at the time of application.

To avoid denial, policyholders should provide accurate medical history and information on the application.

10. Pre-existing Conditions

Life insurance companies may deny claims if the policyholder's death is related to a pre-existing medical condition that was not disclosed during the application process. This includes chronic illnesses, mental health issues, or conditions that were known but not shared with the insurer.

It’s essential to disclose all relevant medical history to the insurer to avoid this type of denial.

11. Death Caused by Homicide

While life insurance policies generally cover accidental deaths, if the policyholder’s death is ruled a homicide, the claim may be delayed or denied if the beneficiary is suspected of involvement. Insurance companies will conduct investigations to determine the cause of death and ensure that the beneficiary is not responsible for the death.

Beneficiaries should be aware that the circumstances surrounding the death will be thoroughly investigated.

12. Death Caused by War

Many life insurance policies include a war exclusion clause, meaning that if the policyholder dies as a result of war-related activities, the claim may be denied. This can apply whether the policyholder is serving in the military or is caught in a war zone as a civilian.

Policyholders should review their policy to determine if there are any war-related exclusions.

13. Expired Term Life Insurance

Term life insurance provides coverage for a specific period. If the policyholder dies after the term has expired and the policy was not renewed or converted to permanent insurance, the beneficiaries will not receive a payout. It’s important to review the policy’s expiration date and ensure it is renewed before it expires.

Policyholders should consider converting their term life insurance to permanent coverage if they anticipate the need for lifelong protection.

14. Policy Violations

Life insurance policies may contain specific clauses related to activities that could lead to claim denial if violated. For example, if the policyholder dies while engaging in activities such as extreme sports, driving under the influence, or committing criminal acts, the insurance company may refuse to pay the death benefit.

Reviewing the policy’s terms is essential to ensure compliance with all requirements.

15. Failure to Investigate Properly

In some instances, life insurance claims may be denied due to a failure by the insurer to conduct a thorough investigation. If the insurance company does not gather all relevant information or improperly handles the claim, the beneficiaries may not receive the payout. In these cases, legal action may be required to contest the denial.

Beneficiaries should stay vigilant and ensure that the insurer is following the correct procedures during the claims process.

Conclusion

While life insurance is designed to provide financial protection for beneficiaries, there are several reasons why a claim may be denied in Canada. Understanding these potential issues can help policyholders avoid mistakes that could lead to claim denials. Always ensure that premiums are paid on time, the policy is up-to-date, and all information provided to the insurer is accurate. Regularly reviewing the terms of the policy and consulting with an insurance expert can help prevent disputes and ensure that your family is protected when it matters most.