There are a few caveats to life insurance coverage if you are a U.S. citizen working, living, or traveling for extended periods outside the U.S. We will list the common circumstances where you think you will be covered under your life insurance policy, but you are not.
You have life insurance, so you have taken the time and effort to apply for it and maintain it for your beneficiaries. Read on to find out how you can be sure your policy pays out when and how you intend.
1. Claims Denied Due to Misrepresentation on Your Life Insurance Application.
Most life insurance policies expressly provide that if there is misrepresentation on your life insurance application (meaning, and factual omissions, mistakes, or misstatements), the policy is void. For example, if there is a place to disclose whether you drive a motorcycle and you do not disclose that, and then you die in a motorcycle accident, this can void your policy and the death benefit will not be paid.
If the insurance company cites misrepresentation as the cause of claim denial, your beneficiaries should not simply take no for an answer. One argument that is frequently successful is that whatever misstatement you made was not material to your death. Your beneficiaries can also argue that if that misstatement would have raised premiums, the insurer should just pay the death benefit minus the amount you would have paid if you had been paying the correct, higher premium all along. That’s fairer than not paying out at all!
So please, be honest and thorough on your application. Disclose everything - all personal details, full medical history, traveling destination, and activities you plan to do while abroad. Share everything - anything less than this gives your insurer an easy reason to refuse to pay death benefits due to your misrepresentation.
High-Risk Destinations and Activities
You should know that there are some destinations and risky activities that your insurer will not cover or will charge a higher premium for due to the higher risk. Better to pay a higher premium and be covered should you have to travel to a limited-travel country, or take part in a high-risk activity. Be upfront with your insurance agent and make sure you are covered.
Previous Medical Conditions
This is a big one. You must, must, must disclose any previous medical conditions, surgeries, major illnesses, and medications if asked. Claims are frequently denied when the insured dies due to an undisclosed medical condition, and it falls to the beneficiary to try to prove that the insured didn’t know he or she suffered from the condition that caused the death. Why make your beneficiary fight that uphill battle?
Non-Resident Status Means No Coverage
If you know how long you will be out of the U.S., let your insurance agent know. Life insurance policies become inactive if you spend more than six months abroad. If you happen to die while your policy is inactive, your beneficiary’s claim will be denied.
2. Claims Denied Due to Policy Exclusions
Every life insurance policy includes a list of “exclusions,” which are types of death that will not be covered by the policy. Commonly, these are death by suicide, substance abuse, act of war or terrorism (esp. if in an unacceptable-for-travel country), and death during some other activity set forth in the policy.
Insurance companies only make money when they don’t pay claims. So, if your insurer even suspects that your death is excluded from coverage, they will investigate and your beneficiary’s claim will be delayed if not denied outright.
You might want to advise your beneficiary to retain a life insurance beneficiary lawyer to represent them if this happens - they can let the lawyer deal with the insurance company’s investigators and then craft and make the necessary arguments in favor of paying the claim.
Claim Denied During the Contestability Perio d
The contestability period is the 2-year period beginning on the day you take your life insurance policy out. During the contestability period, your insurance company has heightened power to examine your initial application for coverage, and if there are any mistakes on it they can and will refuse to pay the death benefit.
I can’t urge you enough - please be honest and thorough in completing your application. You wouldn’t believe the reasons some claims are denied - things like the insured wrote they were born in 1976 when they were born in 1967. They would be denied even though they died of causes unrelated to their age. In these cases, again, some attorneys have been successful in arguing that the beneficiary should be paid the death benefit minus any amount the insured should have been paying in premiums because of the age difference.
If your insurance company thinks you might have died by your own hand, they will deny the claim during the contestability period. This is permitted because historically, insurance companies paid many claims where the insured was planning to take his or her own life and took out a life insurance policy just prior.
3. Set Up Automatic Withdrawal of Premiums.
With the internet and electronic banking, not to mention phone apps that allow you to remotely pay bills and transfer funds, it is so easy to manage your finances while abroad. That being said, it is safest to set up automatic payment of your insurance premiums to make sure you don’t miss a payment, and then be sure to fund that account. If you give your insurance agent your address and email address, they have a couple of ways to contact you if something happens to your premium payment. If premiums are not paid, your policy will lapse and eventually terminate.
If your premium payments are not made and you die before you can cure the arrears, your beneficiaries will still be paid if:
- The policy states that premiums are waived if you become disabled;
- You die within the grace period set forth in the policy;
- The life insurance policy servicer made an error causing your policy to lapse.
To sum up, there are things you can do in advance to ensure that your life insurance policy pays in the way you intend should you die while abroad.