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Key takeaways:
The life insurance payout (or "death benefit") is a tax-free lump sum paid to your beneficiaries if you pass while your life insurance policy in Canada is active.
Your beneficiaries can use these funds however they see fit, including:
First off, it’s rare in Canada for an insurance provider to not pay out a life insurance claim. Canadian Premier, for example, has paid 99% of Term Life claims.
Most of the reasons a payout could be declined are easily avoidable, like providing inaccurate information on your application.
Main reasons life insurance claims are denied in CanadaInaccurate information on the life insurance application.
Policy lapsed due to missed payment.
Policyholder passes away during contestability period.
Death by suicide in the first two years.
Beneficiaries aren't aware the policy exists.
You didn't update your beneficiaries or name a secondary beneficiary.
Cause of death is excluded in your policy.
It is considered intentional misrepresentation if you withhold information or lie to get a more affordable premium during your application process. If you claim not to be a smoker, for example, but the life insurance medical exam during your application reveals years of smoking, that's misrepresentation.
There are a few outcomes if it's revealed you intentionally lied. The best-case scenario is paying higher life insurance rates if this misrepresentation is revealed before you're approved.
Made a mistake on your application?We suggest contacting a customer advisor immediately. Fixing changes can be lengthy because your insurance provider might ask for documentation and proof to ensure you're not scamming them.
You need to make payments on life insurance to keep it active or your policy may lapse. So if something happens to you and you have missed payments, the insurer can deny your claim.
Policies often lapse because premiums are too expensive for the policyholder to keep up with. This is especially true for permanent life insurance policies, which can cost up to seven and a half times more than a similar term policy.
A contestability period is a set timeframe. This is usually one to two years after your policy is put into place. If you pass during your policy's contestability period, the insurance company might reevaluate your policy.
This ensures you don't misrepresent yourself during the application process and protects the insurance companies from fraud.
Honesty is the best policy!If you're completely honest on your application and something does happen during this period, there's no reason to worry about your insurance agency looking into your health.
This is the norm for life insurance policies in Canada, including with PolicyMe. If you die by suicide within the first two years of your policy being in place, most policies won't pay out your death benefit.
A life insurance policy does cover death by suicide if it happens after you have held the policy for over two years.
Mental health resourcesIf you or someone you know is struggling with suicidal ideation, contact Talk Suicide Canada at 1-833-456-4566 or text 45645.
Misstatement of age clause: Lying about your age gives your insurance provider the right to cancel your policy and charge you a higher premium.
Spendthrift clause: This clause gives your insurer the right to hold onto the funds to protect the beneficiary against creditors. In this case, you may receive the claim in intervals.
Free examination period: A period where you can return your policy and still get a full refund of your monthly payments.
Grace period clause: A certain period of time where your insurer gives you a limited time not to pay your monthly payment while still being covered by your policy.
Sometimes beneficiaries don't know their loved ones have a life insurance policy. And when that happens, the person you named your beneficiary won't claim that benefit. You would be surprised how often this happens.
We always recommend being transparent with your loved ones if you name them your beneficiary. It saves them the hassle and ensures they're financially protected as you intended!
If a loved one forgets to let you know you're the beneficiary, you can also search for a lost policy using OLHI search tool.
If you have forgotten to name your beneficiaries, the insurance won't always be passed down to your family. Instead, it will be used to pay for your estate first.
If any remaining insurance money is left, the rest will go to your family; usually, it's not much.
To avoid this, it's a best practice to name primary and secondary beneficiaries. That way, you can be sure the money you're taking out to protect your loved ones does just that.
Read your policy carefully to see what other exclusions may be in your agreement. These might include:
Death by homicide: The insurance provider won't pay out the death benefit if the beneficiary of the policy is suspected of being involved in the insured person's murder.
Death caused by illegal activities: Life insurance providers usually provide a list of things they won't cover called the "exclusion clause." This typically includes illegal activities. Since each policy is unique, it's a good idea to carefully read the fine print to see what exclusions apply to your coverage.
Death caused by war: Some life insurance policies exclude deaths caused by war. This is less common now, though, and many companies do cover war. Check your policy to see if it covers war-related deaths.
Short answer, probably not. If you're honest on your application and pay your premiums, you'll face no real issues when it comes time to make a claim.
There are two main worries that people tend to have about the payout; that the claim will be denied or that the insurance company will go under and be unable to payout.
Both of these scenarios are unlikely. Here's why:
Insurance companies are under government regulation and monitoring to hold sufficient capital reserves to cover the policies they've issued.
Life insurance companies, on average, hold 239 per cent in assetscompared to their liabilities. This means your life insurance policy claims are planned and covered for.
You're also still covered in the (extremely!) rare case of a life insurance company'sreinsurance company going bankrupt. Another company will likely take over your policy.
Reinsurance companies provide insurance to other insurance companies. So even if an insurance company loses their assets, their customers and their policies are still protected and can be paid out.
There are also organizations like Assuris, a Canadian non-profit that protects Canadian life insurance providers if their company fails.
Our policies are issued by Canadian Premier Life Insurance Company. They have been operating for more than 60 years in Canada, with over $300M in assets and $40M in claims paid (across all product lines) in 2020.
Your life insurance with Canadian Premier and PolicyMe is backed by significant financial strength. Plus, Canadian Premier has approved 99 per cent of claims since 2019, so can rest easy knowing your claim will be in good hands.
Need additional pointers to get the most out of the protection you're securing for your family? Chat with a non-commissioned advisor.
Get genuine advice from our non-commissioned Canadian advisors, without the upsell
Here are the top things you can do to prevent your life insurance payout claim from being denied.
This one is pretty simple. If you’re honest with your life insurance provider throughout the application process, it makes it near impossible for them to deny your claim.
The majority (of a tiny amount) of declines happen due to intentional misrepresentation. If you are as honest as possible about your health from the start, you know misrepresentation won’t be an issue.
There is the option to get no medical life insurance, which requires no medical questions or exams. But no medical insurers charge higher rates since they can't properly assess your risk level.
Every life insurance policy has exclusions. For the most part, it's just death by suicide within the first two years. But life insurance is a pretty personal product.
Make sure you fully know the exclusions on your policy to avoid this, not just the exclusions you've heard of. Each policy is unique. For example, if you have a high-risk hobby like professional skydiving, your policy may have an exclusion for death in a skydiving accident.
When you know what your exclusions are, you know what actions will prevent you from receiving a claim. You'll also know for sure if you're eligible for the death benefit, minimizing the chances of disappointment.
Want to learn more about different life insurance providers and their offerings? Read our guide on the 20 best life insurance companies for Canadians.
The best life insurance companies in Canada: get the breakdown.
When you stay up to date on payments, you don’t need to worry about your policy lapsing when you need it most.
If you miss one payment by mistake, don’t panic! This doesn’t mean your insurance policy is entirely void and you need to restart the application process.
Most life insurance companies have a 30 day grace period. If you miss a payment, the company will let you know and allow you to make it up in that window. You can even opt for a double payment at your next premium due date.
In the case you go beyond the 30 day mark and don’t make the next payment, you no longer have coverage.
Can I pick up my life insurance where I left off?If years haven't passed, you can go back to your life insurance provider to get your policy reinstated. They will ask a few questions to confirm your health is relatively unchanged.
Once you pay your premiums for missed months, your coverage will be reinstated.
Here's what you need to do if you are the beneficiary of a death benefit and the policyholder passes away during the term.
1. The first thing you want to do is contact your life insurance advisor if somebody passes away and you were a beneficiary of their life insurance.
2. From there, they will give you a list of documents you need and forms to fill out. Here are some of the documents and forms you can expect to need or to fill out:
Policy Information: Having as much policy information as possible is helpful when making a claim, but your loved ones can get away with just having your policy number. Your loved ones can also ask for this information from your life insurance advisor.
Proof of Death: When somebody passes away, a physician or coroner completes a certificate of death. This proof of death will be required to file a claim.
Claims Form: The claims form is also known as the “request for benefits.” In this form, they submit your name, policy number, and cause of death. They also declare their relationship to you and how they would like to receive the death benefit.
3. Once you gather all this information and share it with the life insurance provider, they will do some policy checks. This includes things like checking if the policy is still active before putting the claim through.
4. From there, your only job is to wait for the claim to be processed. You can answer any questions the life insurance provider may have along the way.
There is no hard and fast rule on how long processing a claim takes. Life insurance companies tend to try to pay out as soon as possible. You can expect it anywhere between a few days to upwards of 60 days, depending on your situation.
With PolicyMe, making a claim is simple. You'll get a dedicated adjudicator who will review your claim and help you navigate the process, so you can focus on being with your family.
If you are denied, you should be provided with a very clear reason. The insurance company needs to share the exact reason your claim is denied.
Here’s what you can do:
Contact the insurer and get more information: Ask your insurer for an in-depth explanation of why you were denied, and document your conversations.
Insurance policies are legal contracts, and the rights and responsibilities of the insurers and the policyholder are always written down. So if you were denied, there should be a clear explanation.
Once you know the reason you were denied, you can contest it: Appeal the insurance company’s decision in writing. All licensed insurers have a designated person/ department assigned to dispute resolution, usually the Complaints Liaison Officer.
When making a complaint, make sure that it is: clear, informative, backed up by documented evidence and timely
This process can take time, so give your CLO time to investigate and formulate an answer.
Contact law firms specializing in financial disputes: They will put together a case as to why your claim shouldn’t be denied.
Depending on their rates, it may be worth it if they are confident they can benefit you.
Contact the government: As a final resort, you can also contact a federal institute like the Financial Consumer Agency of Canada if your claim is unresolved.
Only around four per cent of life insurance claims are denied . The main reason is usually misrepresentation on your application.
Claims might also be denied for other reasons, like suicide during the first two years of the policy, illegal drug overdose, or if the policyholder passes away while doing something illegal or excluded from the policy.
The average Canadian household has $458,000 in coverage, according to CHLIA. But the right amount of coverage will depend on you, your loved ones, and your lifestyle. To get a better idea of what that number will be for you, use a life insurance calculator.
It usually takes a few weeks a few weeks for life insurance to pay out after a claim is made. In the event you pass away during your term, your beneficiaries will make the claim to your life insurance provider. They'll receive a payout, also known as a "death benefit," equal to the coverage you purchased. This death benefit is paid in a tax-free lump sum.
In general, there is no set time limit to make a claim, but it is important to do so as soon as possible after the death to avoid any delays or complications.
Most insurance companies recommend that beneficiaries make a claim within a few weeks to a few months after the death occurs.
In general, life insurance policies do cover death by suicide, but there may be certain restrictions or limitations.
Most life insurance policies have what is called a "suicide clause" which states that if the policyholder dies by suicide within the contestability period after the policy is purchased (typically two years), the death benefit may not be paid out.
This is to prevent people from taking out a policy with the intention of claiming the death benefit immediately.
Mental health resourcesIf you or someone you know is struggling with suicidal ideation, contact Talk Suicide Canada at 1-833-456-4566 or text 45645.
Life insurance policies may have exclusions or limitations for death depending on the person seeking life insurance. For example, someone who is an avid skydiver might have an exclusion clause of their death claim not being paid out in case of a skydiving accident.
If a policyholder dies as a result of illegal drug overdose outside of the contestability period, it is often a reason for the life insurance company to void your claim.
Accidental drug overdose on prescribed medication is usually covered. But can be investigated as a reason to deny your claim if the reason for taking this medication was not disclosed to your insurance provider.
You would be surprised how often we get this question but the answer is, usually yes. You should receive the death benefit payout from your life insurance company if the policy was still in effect and you kept up to date with your payments (as we previously mentioned).
However, the specifics of what is covered and any exclusions or limitations depend on the terms and conditions of your particular policy, so it's important to review it carefully or ask your insurance provider.
Our sources:
CLHIA-ACCAP - Canadian Life and Health Insurance Facts - 2020. (n.d.). http://clhia.uberflip.com/i/1287746-canadian-life-and-health-insurance-facts-2020/9?
Dave, P. (2022, March 30). Life Insurance Clauses Determine Your Coverage. Investopedia. https://www.investopedia.com/articles/pf/06/lifeinsuranceclauses.asp
Dispute Resolution. (n.d.). Insurance Bureau of Canada. http://www.ibc.ca/nb/resources/consumer-resources/dispute-resolution
Lam, J. (2022, September 2). What are the reasons a life insurance policy won’t pay out? Insurance.com. https://www.insurance.com/life-insurance/life-insurance-basics/mistakes-that-kill-claims.html
Search for policy of a deceased | OLHI - Free, impartial help with your life & health insurance complaints. (n.d.). OLHI - Free, Impartial Help With Your Life & Health Insurance Complaints. https://olhi.ca/insurance/search-for-lost-policy/
PolicyMe is a partner of Canadian Premier, a Fortune 500 company Securian Financial subsidiary. We’re a Canadian insurance company that makes financial protection simple and affordable.
© 2024, PolicyMe Corp. (FSRA #36783M.; AMF Client # 3002916818) offers policies issued by Canadian Premier Life Insurance Company (a federally regulated and wholly-owned subsidiary of Securian Financial), Manufacturers Life Insurance Company, Canada Protection Plan, BMO Life Assurance Company and Wawanesa Life Insurance Company.
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