Most people apply for life insurance to leave a monetary benefit behind for their loved ones when they pass away. However, not everyone who applies is accepted for coverage. There are a number of reasons why someone may be declined for life insurance. Although a person's medical situation is a major factor in an insurer's decision to extend a life insurance contract, a healthy individual can be denied coverage for other reasons specified by the company.
One of the most common reasons an applicant is denied life insurance is because of their health. Medical exams are vital to the decision process as various medical conditions may be exposed during the test. This could lead to a applicant getting restricted coverage if their primary ailment is deemed too risky to cover. Also if a person's mental health status is questionable, they may be refused coverage. The decision to deny someone based on their mental capacity depends upon whether the person showed signs of depression, either in the past or currently diagnosed, and whether they display the capability to commit suicide.
If someone with a clean medical background is denied coverage, it may be a result of material misrepresentations. A person may have inadvertently or purposely misrepresented information on their life insurance application in order to get coverage. If someone's age, sex, occupation and work history, alcohol and tobacco use, income and assets come into question, or the applicant failed to list other insurance policies or hobbies and traits that may be deemed dangerous, the insurance company will flag the application. The insurer will then investigate the questionable information before making a final determination for coverage.
The insurance company's decision to deny an application for life insurance is done strictly from a risk standpoint. Life insurance companies want to make sure that the people they are insuring are good risks to live until their premiums are paid up. Accidents and other incidents can happen at any time to anyone, but by denying coverage to people who exhibit factors that can raise the possibility of death before their policies mature, insurers can remain solvent and lower the cost of insurance for their remaining pool.
Being denied coverage for life insurance isn't the end of all possibilities. Depending on the reason for denial, you may be able to get coverage if mistakes in information are corrected or if your health improves to the point that an insurer considers you a good risk. However, once you are denied coverage, the information is sent to the Medical Information Bureau, a database shared by all insurers. The denial of coverage and the reasons why will be noted in your records. This information will be pulled up by every insurer that receives your application for life insurance thereafter. Your failure to get coverage will stick with you, and if you apply for coverage with another insurer, that information will be noted.
Life insurance companies can also deny a death claim years after they extend coverage to a person. If the insured dies during the contestability period, which is a three year window after the insurer issued coverage, the company may go through the application again to see whether the death was caused by something that was misrepresented on the initial application. If there is evidence of falsified information on the application, the insurance company may have the right to deny the death benefit that was agreed upon in the life insurance contract.