March 10, 2013

Less Than 1% of Life Insurance Claims are Denied

Once or twice I've seen people make generic statements about insurance companies denying claims.   I think theres good evidence of pretty high denials for some health insurance claims.   However I haven't seen much evidence that something like life insurance claims are often denied.   Life insurance and health insurance are pretty different and just because a health insurer behaves one way doesn't mean life insurance companies will behave similarly.  For one the laws regulating them are quite different.

Out of curiosity I set out to find out how often life insurance is denied.    I found one source with good info from 2010.   This L.A. Times article Flaws can cancel life insurance — after death  says:

"More often than not, life insurers make good on policies, paying $38 billion in death benefits on individual policies last year. But what happened to Sheila Weissberger was not unusual. The claims of thousands of beneficiaries are denied or disputed every year — more than 5,000 last year alone — many for allegedly flawed applications, a Times review found.
Overall, the amount of money life insurers withheld from beneficiaries has more than doubled over the last decade, to $372 million last year"
Therefore in that year the life insurance companies paid $38 billion but withheld $372 million.   Thats just under 1% that they do not pay.    

Of course there are going to be some legitimate reasons that claims are denied.  Policies may exclude suicide for a certain period or people may make fraudulent claims.    But unfortunately the other side is that insurers may try to deny claims for technical flaws in applications simply to try and get out of paying valid claims.    I can't say how much of the denials are valid and how much are insurers simply trying to get out of paying money. 

I would point out that this is just one source of information and its a couple years old.   Also the 1% is the amount of money not paid and doesn't tell us the % of claims that are denied or disputed.  

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