Life Insurance Claim Denials Due to Payment Failures and Lapsed Policies
When it comes to life insurance, keeping a policy active depends largely on timely premium payments. Many policyholders rely on automatic withdrawals, employer deductions, or policy features like cash value, dividends, or riders to cover their premiums. But if any part of the payment process breaks down—due to a bank change, employment change, or misunderstood policy term—the consequences can be devastating. Our life insurance lawyers regularly assist families who face unexpected claim denials due to payment-related issues. Below are real case examples that show how small administrative or financial missteps can lead to a lapsed policy and a denied claim.
Monarch Life Insurance: Account Change Leads to Missed Premium
In one case, a client updated their bank account but failed to notify Monarch Life Insurance of the new information. As a result, the automatic withdrawal attempt failed. The insurer allegedly did not send a proper lapse notice, and the policyholder unknowingly missed the payment deadline. After the grace period passed, the policy lapsed. When the insured passed away, the family’s claim was denied due to non-payment, despite their intent to keep the policy in force.
Gerber Life: Cash Value Depletion and Unnoticed Lapse
This case involved a permanent life insurance policy that used its cash value to pay premiums. Over time, that cash value was depleted. The policyholder did not resume paying premiums manually and did not receive a lapse notice in time. The policy quietly terminated. When the insured died, Gerber Life denied the claim, pointing to the expired policy status. These types of denials can often be challenged if the insurer failed to notify the policyholder in a timely or compliant manner.
Zander Life: Expired Term Coverage with No Renewal
With Zander Life, the policyholder had a term life policy that ended at a predetermined time. The bank automatically stopped withdrawals after the term expired. The policyholder did not renew or convert the policy to permanent coverage. When he passed away after the term had ended, there was no valid coverage in place, and the claim was denied. This case shows the importance of understanding when your term policy ends and the steps needed to maintain continuous coverage.
Ameriprise Life: Employment Change Caused Coverage Lapse
This client had group life insurance through work, with premiums deducted from their paycheck. After leaving or retiring from their job, they failed to port the group coverage to an individual policy or arrange for direct premium payments. Unaware that their coverage had ended, they passed away with no policy in force. Ameriprise Life denied the claim. Group policies often require proactive continuation steps after employment ends, and a failure to act can result in lost coverage.
Freedom Life: Skipped Premiums Under Rider Not Honored
Some policies allow skipped premium payments under special riders, such as for disability or unemployment. In this case, the policyholder believed they qualified under the terms of the rider but failed to submit the required documentation to Freedom Life. The insurer determined the rider conditions were not met, canceled the policy for non-payment, and denied the claim. This type of denial often depends on whether the insurer gave the policyholder a reasonable opportunity to prove eligibility under the rider.
Costco Life: Accidental Death Rider Excluded from Claim
This case didn’t involve a lapse of the base policy, but rather a denial of the accidental death rider. The policyholder died under circumstances that were ultimately ruled non-accidental, possibly from natural causes or suicide. As a result, Costco Life denied the extra benefit. The bank stopped deducting the premium for the rider after the claim was rejected. It's important to understand what triggers a rider benefit—and what exclusions apply—before assuming the payout will double for an accident.
Inter-American Life: Disability Waiver Rider Denial
Inter-American Life included a premium waiver rider for disability, valid only if the insured became disabled before a certain age. In this case, the disability occurred after that cutoff age or the policyholder failed to supply adequate medical proof. Without the rider’s protection, the policy lapsed for non-payment, and the life insurance claim was denied. The complexity of disability riders often leads to unfair denials—especially if the insurance company sets unreasonable documentation demands.
Confederation Life: Policy Loan Causes Unintentional Lapse
In a troubling case, the policyholder had borrowed against the cash value of their life insurance policy. Over time, unpaid interest accrued and the loan balance exceeded the remaining value. The policy automatically lapsed due to this imbalance. Confederation Life denied the claim. Borrowing from your policy may seem safe, but it can quietly erode its value if not monitored carefully. Insurers must provide clear warnings about loan risks—failure to do so may be a defense in some cases.
First Capital Life: Dividend Shortfall Leads to Denial
This policyholder had elected to use policy dividends to cover premium payments. Unfortunately, the dividends were not sufficient to fully cover the premium, and the policyholder didn’t pay the remaining balance out of pocket. Without realizing it, the policy lapsed. After death, First Capital Life denied the claim. Denials like this are sometimes reversed when the insurer failed to notify the insured of the shortfall or made the dividend arrangement seem more self-sustaining than it was.
What These Denials Have in Common
Whether due to account changes, expired policies, overlooked notices, or misunderstood riders, all of these cases share a core issue: the policyholder lost coverage without intending to. Some denials are final—but others can be challenged when the insurer failed to provide adequate lapse warnings, failed to follow legal notice procedures, or made misleading representations about the policy’s operation. Our firm investigates the timeline, payment history, policy terms, and insurer conduct in every denied claim. We’ve helped many families recover denied benefits that insurers tried to withhold after technical payment disputes.
FAQ
Can a life insurance policy lapse if a payment fails once?
Yes, if the policyholder doesn’t make the payment within the grace period, usually 30–60 days. Insurers must typically send a lapse notice, and failure to do so may give grounds for legal action.
What happens if I change banks and forget to update my automatic withdrawal?
If the insurance company tries to withdraw from a closed account, the payment fails. If you don’t notice and don’t pay manually, the policy may lapse. Some states require the insurer to notify you of the missed payment before terminating the policy.
Are insurance companies required to notify policyholders before a lapse?
In most states, yes. Insurers must send written notice before terminating coverage for non-payment. If this wasn’t done properly, the denial may be contested.
Can I sue if my life insurance claim is denied due to a payment issue?
Yes, especially if the lapse was caused by inadequate notice, deceptive policy language, or a payment method failure that wasn’t clearly communicated. Our attorneys can review your case to determine if legal recourse is available.