What Disqualifies a Life Insurance Payout? Common Reasons

Many Canadians wonder whether life insurance will actually come through when it counts — a doubt that can make even the most practical people put off getting coverage. But the truth is far more reassuring: in Canada, life insurance claims are rarely denied. In fact, Canadian insurers pay out billions in benefits every year, doing exactly what they’re meant to do — support families.

Instead of fretting about whether a payout will come through, it’s far more empowering to understand the small handful of situations that can complicate things. Knowing these exceptions isn’t about expecting the worst — it’s about giving you and your family clarity and protection. In this article, we break down the most common reasons a life insurance payout might be delayed or denied, and how to keep your coverage working exactly as intended.

Key takeaways

• In Canada, life insurance pays out the vast majority of the time. Denied claims are rare.

• Most issues arise from preventable problems like misrepresentation, undisclosed medical details, policy lapses, or beneficiary complications.

• If the cause of death falls under an exclusion (like risky activities or illegal behaviour), the insurer may not pay the claim.

• A lapse in premium payments ends the coverage, meaning the policy won’t pay out unless it’s reinstated.

• Keeping beneficiary information updated helps ensure the payout goes to the right people without delays or legal detours.

Understanding life insurance payouts

Life insurance is built on a simple idea: you pay ongoing fees (usually monthly or annually), and in return, the insurer provides coverage on your life. If you pass away while the policy is active, your beneficiaries receive the death benefit — a tax-free lump sum equal to the amount of coverage you chose.

Who receives the payout?

The death benefit goes to the beneficiary or beneficiaries you’ve named — a spouse, partner, children, another loved one, or a charity. If there are multiple beneficiaries, you decide how the benefit is divided.

What affects the payout amount?

The size of the death benefit depends on the amount of coverage you purchased, and any optional add-ons (called riders) can influence the final payout.

How does the claim process work — and how long does it take?

Once a claim is submitted, the insurer confirms the policy was active, verifies the required documents, and checks for any exclusions. In most provinces, insurers need to pay out within 30 days of receiving all information, and claims may be processed even faster. Typically, payments can be expected within a week to 10 days of submitting a complete claim.

After approval, the funds are released to the beneficiary or beneficiaries, who can use them however they choose — from covering household bills to paying off a mortgage to supporting long-term goals like retirement or education.

10 reasons why a life insurance payout is denied

Most life insurance claims in Canada are paid out without any snags. When a payout doesn’t happen, it’s usually because of a specific rule or an issue that could have been prevented. Below are some of the most common reasons a death benefit might not be approved, along with tips on how to avoid them.

1. Lying or misrepresenting

Insurers rely on the personal details you provide — your age, lifestyle habits, occupation, smoking status, and more — to assess risk. If any of those details are inaccurate or incomplete — whether forgotten, glossed over, or intentionally left out — it can cause issues during a claim review.

Misrepresentation can look like:

• Downplaying or omitting parts of your medical history.

• Understating smoking, vaping, nicotine, alcohol, or substance use.

• Leaving out higher-risk activities (like extreme sports).

• Reporting your age or lifestyle details incorrectly.

• Omitting occupational risk.

Even small omissions can affect eligibility. Intentional misrepresentation — like claiming you’re a non-smoker when medical evidence shows nicotine use — can lead to higher premiums, denied coverage, or a denied payout.

Honest mistakes, however, are different. If someone realizes they made an error, updating the information with the insurer quickly can help prevent claim complications.

2. You didn’t disclose a medical condition

Applications ask about diagnoses, treatments, medications, tests, and follow-ups because this information affects risk. Leaving out something meaningful — even unintentionally — may surface during the claims review.

Non-disclosure can look like:

• Not reporting a diagnosed condition (like hypertension, diabetes, heart issues, etc.)

• Leaving out a mental health diagnosis or recent treatment.

• Forgetting to list current or long-term prescription medications.

• Omitting recent tests or specialist visits that point to an ongoing health concern.

Medical records are typically checked during a claim. If something significant wasn’t disclosed, the insurer may delay, reduce, or deny the payout.

3. Dying during the contestability period

The first few years (typically 2) of a policy are known as the contestability period — a window where the insurer can double-check the accuracy of your application if you pass away. If everything checks out, the payout proceeds. If something major was left out, the claim may be reduced or denied.

4. Death by suicide in the first two years

Most Canadian life insurance policies include a two-year suicide clause. If the policyholder dies by suicide during this timeframe, the death benefit usually isn’t paid, although some insurers may refund premiums. After this two-year window, death by suicide is generally covered, and the claim is processed like any other.

Insurers may treat medically assisted death (MAID) differently. Some view it as separate from suicide and may pay the benefit even within the two years, while others may process it as a death from illness.

5. Cause of death isn’t covered

Policies list certain excluded causes of death, including:

• Risky or extreme activities: If someone passes away while engaged in high-risk activities (think: skydiving, racing, technical diving, or piloting a private plane), the policy may not pay out unless those activities were disclosed and specifically included.

• Substance-related deaths: Fatalities linked to intoxication, such as drunk-driving accidents or overdoses involving illegal or non-prescribed drugs, may not be covered.

• Self-inflicted injuries beyond the suicide clause: Some policies won’t cover deaths caused by deliberate self-harm or intentionally dangerous behaviour (like extreme stunts or life-threatening dares).

• Homicide involving the beneficiary: Under the “Slayer Rule,” insurers won’t pay a benefit to someone who’s suspected or convicted of being involved in the policyholder’s death.

• War, terrorism, or high-risk regions: Some policies exclude deaths caused by war, armed conflict, or travel to countries considered unsafe. If the cause of death falls under an exclusion, the claim may be denied.

6. Criminal activity

If someone dies while engaging in illegal activities, the insurer may deny the claim. Examples include:

• A fatal accident caused by impaired driving.

• Death linked to illegal drug use or trafficking.

• Being killed while committing a crime, such as robbery or assault.

• Dying while fleeing police or during another unlawful action.

Each policy spells out which acts are excluded.

7. Your policy lapsed

Life insurance only pays a death benefit if the policy is active. If premiums go unpaid long enough, the policy lapses and ends coverage. Insurers usually provide a grace period (e.g., 30 days), but once that window closes, the policy would be terminated, and your beneficiaries won’t receive a payout.

8. Your beneficiary passed away before you

Life insurance only pays the death benefit to a living, named beneficiary. If that person passes away and no contingent beneficiary is listed, the payout typically defaults to your estate. That can lead to delays, extra legal steps, probate fees, and reduced funds for your loved ones.

9. Failing to update beneficiaries

Life changes — families shift, relationships evolve or fall apart— but beneficiary designations stay frozen in time until you update the policy. Problems can arise when:

• A beneficiary has passed away.

• An ex-partner or outdated name is still listed.

• No contingent (secondary) beneficiary is named.

• Names or percentages of payout to beneficiaries conflicts with other documents.

If information is outdated or unclear, the payout may be delayed or sent to your estate instead of the people you intended it to go to.

10. Missing the deadline to file a claim

Claims must be filed within a set timeframe — typically 90 days to 12 months, depending on the policy. Late claims may still be reviewed, but approval depends on whether the insurer can verify the details of the death.

How to prevent your claim from being disqualified

Most issues that derail a payout are avoidable. Here are a few tips to keep your coverage valid:

1. Answer questions honestly

Insurers rely on the details you share about your health, medical history, and lifestyle to assess risk and set up your coverage. If something’s missing or not quite accurate, it can come back into play later if a claim is reviewed — and that’s a headache no one needs.

If health concerns make qualifying for traditional life insurance difficult, Guaranteed Acceptance Life Insurance offers a simple workaround. There’s no medical exam, no health questions, and Canadians aged 40 to 75 are automatically approved for up to $40,000 in lifetime coverage. Premiums stay the same, and the protection lasts for life.

2. Understand policy exclusions

Every life insurance policy sets out limits and situations it won’t cover. Exclusions vary between insurers, so take the time to review your own policy to know exactly what’s included (and what’s not).

3. Keep paying premiums

Your coverage only stays active if premiums are paid in full, on time. If payments stop, the policy can lapse, leaving a gap in coverage. Staying current keeps your coverage intact and ensures your loved ones will receive a payout should you pass away.

4. Review and update your policy

A quick yearly check-in helps keep your policy aligned with your current circumstances. Make sure your contact information is up-to-date and your beneficiary choices still reflect your wishes. Adding a secondary beneficiary can also prevent hiccups if things change down the road.

How do you claim a death benefit?

When a loved one passes, the last thing anyone needs is to navigate a maze of paperwork. Fortunately, life insurance claims are usually straightforward. Here’s how it typically works:

• Locate the policy, if possible: Knowing the policy number can speed things up, but the insurer can also help if you don’t have it. If you’re unsure which company issued the policy or the paperwork is missing, the OmbudService for Life and Health Insurance (OLHI) offers a free national search to confirm whether a policy exists and who holds it.

• Call the insurer as soon as possible: Claims must be made within a certain timeframe, which varies by policy type.

• Submit the required documents: This usually includes a completed claim form, a death certificate, a birth certificate, and any other documents requested based on the type of coverage.

• Express service may be available: For RBC life insurance policies worth up to $100,000, some claims may qualify for faster processing – provided the policy has been active for over 10 years and has a named beneficiary (policies listing the estate don’t qualify).

Protect your life insurance payout

A life insurance payout is meant to support your family during tough times — and in Canada, it almost always does. The few situations that can jeopardize a claim usually come down to avoidable issues like missing information, undisclosed medical details, lapsed payments, or outdated beneficiaries.

The best way to protect your coverage is simple: be honest, transparent, and understand the parameters of your life insurance policy. If anything in the fine print leaves you scratching your head, speak with a qualified professional. A licensed advisor can help you navigate the details, so your protection works exactly as you intended.

FAQs about what disqualifies a life insurance payout

Under what conditions does life insurance not pay out in Canada?

Life insurance in Canada almost always pays out. Claims are typically denied for misrepresentation, undisclosed medical conditions, premium lapses, policy exclusions, or beneficiary complications.

What percent of life insurance claims get denied?

Declined claims are rare in Canada. Industry estimates suggest that roughly 4 per cent of life insurance claims are denied. Most claims are paid without an issue.

What can I do if I’m having problems processing a life insurance claim in Canada?

If a claim is delayed or you’re not sure where to start, you have a few options:

• Talk to the insurer directly to clarify what’s missing and what’s needed to move the claim forward.

• Get free, impartial advice from the OmbudService for Life and Health Insurance (OLHI).

• Consult a qualified advisor to help you understand how to navigate the process.

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