5 mistakes that kill life insurance claims

1. Lying on your life insurance application

They say the truth hurts, but it can hurt even more if you lie on your life insurance application. While it may be tempting to deny that you're a smoker, or that you've been treated for a particular disease or medical condition, you could find your policy null and void. Life insurance companies consider these factors when setting rates -- or determining whether to insure you at all.


If your life insurer finds out you lied, it's considered "material misrepresentation," and your application for life insurance will probably be denied. If the policy has already been issued, there's typically a two-year contestability period.

2. Failing to pay and letting your policy lapse

Just because you miss a payment doesn't mean your policy is dead in the water. Life insurance companies typically offer policyholders a 30-day grace period for payment, and some companies extend that to 60 days. During that time your policy will still be in effect.

Even after the grace period is up, you usually can get your term policy reinstated, but if the lapse has been lengthy you may need to undergo another medical examination. If you have a permanent life insurance policy, the insurer might use the cash value in the policy to cover the premiums and prevent a lapse in coverage. 

3. Failing to tell loved ones about your life insurance policy

If you never tell your beneficiaries about your life insurance policy, it doesn't mean the insurer won't pay them after your death, but it does make it a more difficult process. While most life insurance companies conduct database checks for the death of policyholders so beneficiaries will get paid, not all of insurers do so in a timely manner. That's why it's wise to be sure your loved ones know about your policy and where to find it after you're gone.

In some cases beneficiaries are unaware they are named on a policy, and proceeds go uncollected for years because some insurers are not diligent about tracking down survivors of policyholders. Several large companies, including Prudential, AIG,

4. Not naming a secondary and final beneficiary

It is important to name secondary and final beneficiaries. If your primary beneficiary dies before you, policy proceeds will go to the second beneficiary you have listed. If the secondary beneficiary has passed away when you die, then the death benefit goes to the final beneficiary. If you don't have anyone waiting in the wings, it doesn't mean the money disappears. In that case the proceeds will go to your estate.

5. In some cases, death due to risky behavior and suicide

Life insurance policies typically have a two-year exclusionary period for suicide, so your beneficiary typically would receive whatever you paid in premiums, but not the policy's face amount. So-called "suicide clauses" vary by insurer and are designed to discourage people from buying life insurance when contemplating suicide. If you're involved in criminal activity, and you're killed while committing a crime, your beneficiary will still receive the proceeds from your policy.