In British Columbia, having a life insurance policy is a responsible way to care for the people you love. But to make sure it truly delivers when it matters, it’s important to understand how the life insurance basics work—including what could delay or disqualify a claim. A little planning now ensures your family gets the full benefit when the time comes.
Understanding the Death Benefit
The death benefit in life insurance is the lump-sum payment made to your named beneficiaries after the insured person dies. This tax-free amount can be used for anything your loved ones need, including:
- Covering funeral or burial expenses
- Paying off household debt or loans
- Replacing lost income
- Supporting education or childcare
To start the claim process, your beneficiaries must notify the insurer, complete a claims form, and submit an official death certificate. Most claims are processed within 30–60 days if the paperwork is complete and the policy is in good standing.
Common Reasons for Denied Claims
Even in a time of loss, insurance companies must follow strict policy terms. Knowing what disqualifies life insurance payout can help you avoid issues that could prevent your family from receiving the benefit:
- Missed Payments: If the policy lapses due to unpaid premiums, there’s no payout.
- Misrepresentation or Fraud: False medical history or hidden lifestyle risks can void the policy.
- Excluded Circumstances: Many policies won’t pay out if death occurs due to suicide within the first two years, illegal acts, or undisclosed high-risk activities.
- Contestability Period: During the first 24 months, the insurer can review the application for errors or omissions—even if accidental—and deny the claim based on findings.
When the Policy Owner Dies First
You might wonder, what happens if the owner of a life insurance policy dies before the insured? This can cause complications unless the policy has been set up carefully. Here’s how it plays out:
- If a contingent owner is named: The new owner takes over automatically, and the policy stays active.
- If no one is named: Ownership may pass to the estate, possibly causing delays in probate. If no one takes responsibility, the policy may lapse.
To prevent issues, name a contingent owner and ensure someone is ready to handle premium payments if the original policy owner passes away.
Keeping Your Policy on Track
For a smoother claims process down the road, take these simple steps now:
- Pay premiums on time and track renewal dates
- Update your beneficiaries whenever your life changes
- Confirm that your personal and medical details are accurate
- Let a trusted family member know where your policy documents are stored
Final Thoughts on Life Insurance Basics
Understanding how life insurance works—and how to avoid mistakes—gives your family peace of mind. In British Columbia, where life can move fast and family comes first, taking the time to manage your policy wisely is one of the best gifts you can leave behind. Contact us. 1-866-497-6231