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Can I negotiate a denied life insurance claim?

It does not happen often, but when an insurance company denies a life insurance claim, it is a serious matter. If a person has paid into a policy, sometimes for years, and then the survivors do not receive the benefits, there is not only a financial loss but an ethical issue involved. Most companies, for this reason, will work very diligently to ensure that all legitimate claims are paid.

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However, there are occasions when a company may legitimately deny a claim for insurance proceeds. This can happen in any circumstances where the manner of death is not covered by the policy. All policies have “excluded events”; the most common are suicide, engaging in dangerous activities, and certain aviation accidents. When a person dies by one of the excluded events, the company has a right to deny payment of the policy.

Excluded Events

If you have been denied a claim based on an excluded event, the chances are that you do not have much room to negotiate. For example, if an insured loved one takes out a policy and six weeks later commits suicide, the chances are high that this is an excluded event, and you will not collect any money.

However, let us look at a slightly different situation. Perhaps a loved one took out an insurance policy around two years ago (the standard period before the suicide clause disappears). Just prior to the two years expiring, your loved one dies in circumstances that make it difficult to determine if the death was suicide or accident—perhaps cleaning a gun, for example. At this point, the insurance company may refuse to pay on two grounds: first, the suicide; second, the non-expiration of the contractual period excluding suicide.

In a situation such as this, you are far more likely to be able to negotiate with the company. The reason is simple: if the case goes to court, there is a chance that a judge or jury will rule in your favor. If there is a possibility that you are going to collect the entire policy face amount by going to court, the company will often settle for a portion of the proceeds to avoid an expensive legal battle and the negative publicity inherent in fighting a family member for the money.

Material Misrepresentation

Another reason a company may deny a claim is material misrepresentation. This means that the applicant put some type of false information on the application when originally taking out the policy, such as false age, health conditions, or smoking habits. If the applicant truly misrepresented his or her facts on the application, there may be little you can do. However, if there is a question that can be negotiated, or if you have a legitimate explanation for the behavior of the applicant, it pays to talk to the company.

Very rarely, companies pursue lawsuits involving claims that have already been paid. If a deceased person misrepresented facts on the application, or if the person filing the claim put false information, and it is discovered, the insurance company may demand the return of their funds, even if it has been some time since the claim has been paid. It always pays to be honest both when applying for a policy and when filing a claim for benefits.

Do not expect an insurance company’s representative to help you pursue a denied claim. From the company’s standpoint, they cannot afford to pay false claims and stay in business for long, so it is a matter of survival that they maintain their legal position. However, companies also do not want the negative publicity, legal costs, and other problems associated with denying a legitimate claim. If you can show the claim has merit, you will quickly gain the attention of the firm and will probably receive settlement offers. Also, if you can show that the claim was mishandled or filed improperly, and that the claim was actually legitimate, company representatives will be much more willing to discuss your case with you. No insurance company, after all, wants to be known as the company that denied a legitimate life insurance claim; this would hurt their future business with other customers, who might be hesitant to trust the company.

The negotiation process may not be one you want to engage in without some help. While lawyers are expensive, if an attorney is able to substantially increase your settlement amount, it may be worth it to pay for representation. Many lawyers will take a case on “contingency,” which means that the lawyer takes a percentage of the settlement, and does not get paid unless the case is won. However, there is a danger in contingency settlements; the lawyer will want to hold out for a large settlement, when you might have settled quickly and easily for a smaller amount. Some contingency cases can take years to settle.

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