Pay-Out Refusal

There are certain scenarios which would render a life insurance policy invalid and result in a pay-out being refused. Unfortunately, there is no comprehensive list of invalidating circumstances, but the most frequent grounds for refusal include fraud, misrepresentation and suicide.

If you fill in your application for life insurance in a fraudulent way your survivors may be refused a pay-out. For example, if you claim that you have no history of heart problems and lead an active but ordinary life when you are in fact a stunt man who suffered a heart attack the year before, your insurance provider will argue that they were not presented with the true facts and so your application was fraudulent. Failure to present your insurance provider with the true facts about your personal circumstances prevents them from correctly calculate the risk of you dying or suffering from a serious illness: they were offering cover based on false information and will refuse to honour their agreement.

Misrepresentation in your application, or 'material misrepresentation' as it is sometimes known, has much the same effect on your policy as fraudulent claims: it will usually result in a refusal to pay out to your survivors. Material misrepresentation refers to any lies or omissions you made in your life insurance application which would affect the ability of the insurance company to correctly calculate the risk of you dying or being diagnosed with a terminal illness. This misrepresentation may have been in the original application for cover or in a subsequent amendment made to the policy.

Failure to mention something that would be of interest to your insurance company, or lying about the state of your health or your personal circumstances on an application for life insurance counts as misrepresentation and will usually result in the policy being void. Any form of lying or 'bending the truth' can give an insurer good reason to refuse a pay-out, whether this be a lie regarding your occupation, employment history, age, claims made, income, smoking status, driving record, alcohol intake and/or partaking in dangerous sports or hobbies.

An insurance provider may refuse to pay out if you commit suicide shortly after purchasing the policy. This is to ensure that you do not purchase an insurance policy with the intention of committing suicide the following day, forcing the insurance company to pay out a large sum of money when you have made few or no premium payments. Often life insurance policies will include a clause which states that you will not be covered if you commit suicide within one or two years of purchasing the insurance.

If you have ever suffered from clinical depression, you may be considered as a greater suicide risk and therefore face higher premiums or a longer pay-out refusal period. Confirmation from your GP or specialist that you have been receiving treatment and are no longer a high risk patient might enable you to avoid unnecessarily expensive premiums. If you have no history of anxiety nor of depression, and have never exhibited suicidal tendencies, your insurance company may pay out to your survivors even if you commit suicide soon after purchasing the policy. It is important to check the terms and conditions of your policy to know exactly what will and will not be covered. Similarly, you will not usually be eligible for a pay-out in the event of a serious illness unless you have taken out a specific policy which pays out under these circumstances, for example Critical Illness Cover.

Once you have agreed to an insurance policy, the insurance provider must honour it except in specific legal circumstances and at any specified times set out in the policy contract. More often than not there are only two reasons for your policy being cancelled by your provider: if you fail to make the payments owing, or lie on your application form and this comes to light.