Term Life Insurance Claim Denial Reasons – Explained
Hi, WealthTrack founder David Pipe here. If you’re reading this, chances are you or someone you care about is dealing with the difficult process of filing a term life insurance claim. Maybe you’ve been told a claim was denied, or you’re just trying to understand what could go wrong before it happens.
As someone who’s spent years working in the insurance world, I’ve seen plenty of claims denied — sometimes for reasons that could have been avoided, sometimes because of complicated policy rules. My goal here is simple: to help you understand the most common reasons term life insurance claims get denied in Canada, so you can protect yourself and your family.
Interested in Building Wealth?
Reach out to WealthTrack today!
1. Non-Disclosure or Misrepresentation on the Application
One of the biggest reasons claims get denied is because the policyholder didn’t fully disclose their health history, lifestyle, or other important details when they applied. Insurance companies rely heavily on the information you provide to decide how risky you are to insure. If you leave out something like a smoking habit, a past illness, or a high-risk hobby like skydiving or scuba diving, the insurer may consider this misrepresentation.
Even unintentional omissions can cause trouble. Sometimes people don’t realize a past condition is relevant, or they forget to mention certain medications. But when the insurer investigates a claim — especially during the first two years — they’ll compare your application to medical records and other data. If they find inconsistencies, they might deny the claim.
The lesson here is clear: be brutally honest on your application. It might mean paying higher premiums, but it ensures your family won’t be left in the cold if the worst happens.
2. The Contestability Period — The First Two Years
In Canada, most term life insurance policies include a “contestability period” that lasts about two years from the policy start date. During this time, if the policyholder dies, the insurer has the right to investigate the claim thoroughly. They’re looking for any misrepresentation or omissions in the application.
I’ve seen claims denied where someone didn’t mention a history of depression or a minor surgery simply because they thought it wasn’t important. Unfortunately, during this period, the insurer can refuse to pay out if they determine the policyholder withheld material information.
If you’re in this early period, it’s even more critical to ensure your application was accurate and complete. After this window closes, insurers generally cannot deny claims for misrepresentation, unless there’s fraud or other serious issues.
3. Policy Lapse Due to Missed Premium Payments
Another surprisingly common reason for claim denial is that the policy has lapsed because premiums weren’t paid on time. Term life insurance usually requires regular premium payments — monthly, quarterly, or annually — to keep the coverage active. If a payment is missed and the policy lapses, there’s no coverage when death occurs.
Most Canadian insurers offer a grace period, typically 30 days, during which a late payment can be made without losing coverage. Some policies even allow reinstatement within a certain timeframe if the policyholder can provide updated health information.
Still, it’s easy for people to forget payments, especially if they have multiple bills or are paying annually and lose track of the due date. Setting up automatic payments or calendar reminders can save a lot of heartache down the road.
4. Suicide Within the Exclusion Period
Term life insurance policies almost always include a suicide clause. This means if the policyholder dies by suicide within a certain period—usually the first two years—the insurer will not pay the death benefit. This is a standard exclusion and is meant to protect the insurer from immediate claims after policy purchase.
It’s a sensitive topic, but important to know if you’re managing or advising someone on a policy. After that exclusion period, suicide deaths are generally covered.
5. Death Occurred After the Term Expired
Term life insurance coverage is for a fixed number of years—say 10, 15, or 20 years. Once the term ends, the coverage ceases unless the policyholder renews or converts it to a permanent policy.
Unfortunately, I’ve seen cases where people thought they were still covered, only to find out their term expired months or years earlier. If death occurs after the term ends, there’s no payout.
This is why it’s essential to keep track of your policy’s expiry date. If you still need coverage, talk to your insurer or broker about renewal options well before the term runs out.
6. Death Resulted from an Excluded Cause
Many policies have exclusions for specific causes of death. Common ones include death related to participation in illegal activities, acts of war, or dangerous hobbies not covered by the policy.
For example, if a policyholder dies in a private plane crash and their policy excludes aviation-related deaths, the claim could be denied. The fine print matters. It’s crucial to read your policy carefully to understand what’s covered and what’s not.
7. Paperwork and Documentation Issues
Sometimes claims aren’t denied because the insurer wants to avoid payment, but simply due to incomplete or incorrect paperwork. Missing the death certificate, unsigned claim forms, or failure to submit required documents can delay or stall a claim.
In a stressful time, it’s understandable that paperwork can get lost or forgotten. To help, keep all policy documents organized and ensure the named beneficiaries know where to find everything when the time comes.
8. Outdated or Conflicting Beneficiary Designations
Disputes over beneficiaries are another reason claims get tied up or denied. If a policyholder never named a beneficiary, named an ex-spouse, or made changes to the beneficiary without updating the insurer, confusion arises.
If the insurer can’t determine who should receive the benefit, the payout may go to the estate, which can mean probate delays and potential family disputes. To avoid this, review and update your beneficiary designations regularly, especially after major life changes like marriage, divorce, or having children.
9. How to Protect Yourself and Your Family
Understanding the potential pitfalls that lead to claim denial is the first step. Here are some practical tips to help avoid common issues:
Be honest and thorough on your application. No detail is too small.
Keep track of premium due dates and pay on time—set up auto-pay if you can.
Know your policy’s contestability period and coverage term dates.
Review your policy’s exclusions carefully.
Keep your beneficiary designations current and notify your insurer of any changes.
Organize your policy documents and share their location with trusted family members or executors.
If you have questions or concerns, talk to a qualified insurance broker or legal advisor.
Final Thoughts
Term life insurance is meant to provide peace of mind — financial security for your loved ones when you’re no longer there. Unfortunately, claim denials can and do happen, often leaving families with confusion and frustration during an already difficult time.
By understanding the reasons claims get denied and taking proactive steps, you can help ensure your policy works as intended. It’s not about distrust or paranoia; it’s about being informed and prepared.
If you’re considering term life insurance, or already have a policy, take a few moments to review your application, payment status, and beneficiary information. It’s one of the best ways to protect the people who depend on you.
