Living Benefits Sound Like a Lifesaver—Until You Get Denied

Life insurance living benefits can offer much-needed funds if you’re diagnosed with a terminal or critical illness. But you might face delays or denials if the insurer disputes your diagnosis, life expectancy, or paperwork. Knowing how the claims process works can help you avoid these issues and get the benefits you’re owed.

Key Takeaways

• Some life insurance policies include living benefits, which let you access money if you’re diagnosed with a terminal or critical illness.
• These benefits depend on strict rules about your diagnosis and life expectancy, which can lead to delays or denials.
• If your claim is denied, you can appeal by asking for a written explanation, submitting updated medical records, and getting help from a lawyer.
• To avoid claim problems and financial stress, read your policy carefully, keep detailed records, and consider additional coverages besides life insurance.

What Are Living Benefits and How Do They Work?

Living benefits, also known as accelerated death benefits, let you take money from your life insurance policy while you’re still alive. They’re usually added as optional riders and apply if you’re diagnosed with a serious illness or injury. Some insurers include these riders at no extra cost.

When and whether you can claim these benefits depends on the insurer and the type of living benefits rider you have. For instance, a terminal illness rider allows you to file a claim if you’re given a certain amount of time to live, usually 12 to 24 months, while a critical illness rider can provide funds if you experience a specified serious condition, like cancer, paralysis, or cardiac arrest.  

If the insurer approves your claim, you can use living benefits to pay medical bills, hospice care expenses, outstanding debts, and more. The insurer sends you cash, which you can spend as you see fit. You don’t need to submit medical expenses for approval. However, taking money out through living benefits reduces the policy’s overall death benefit, leaving less money for your heirs.

Important

Some life insurance companies charge fees or interest when you access your accelerated death benefits.

The Fine Print: Why Some Claims Get Denied

Living benefit claims can be denied because the requirements can be difficult to meet and are often open to interpretation. 

For instance, in 2020, a Minnesota man sued his life insurer for denying an accelerated death benefit claim after its medical examiner determined he had 37 months as opposed to the requisite 24 months to live. (The insurer ultimately paid out the claim, even though it won in court, after the man provided new information about his life expectancy to meet the requirements.)   

“People think if they’re terminally ill, they’ll just get this benefit, and that’s not the case,” said Tatiana Kadetskaya, a Pennsylvania-based attorney who represents policyholders denied accelerated benefits as part of her practice. Instead, they’ll have to provide proof of life expectancy, and that proof needs to satisfy an insurer’s medical and underwriting experts.  

“People may present a letter from a doctor, and it may not be enough,” Kadetskaya said.

A Critical Issue?

Life insurance industry representatives say denials of accelerated death benefits are uncommon. 

“Life insurers understand the importance of these benefits to policyholders and their families,” said Whit Cornman, a spokesperson for the American Council of Life Insurers (ACLI). “They take their commitments seriously, honoring the letter and spirit of all provisions in a life insurance policy contract.”

However, consumer advocates argue some insurers are turning down policyholders without good justification so that the insured give up or accept a smaller payout. 

“There are numerous anecdotes indicating that these unfair delays and denials are a problem,” said Michael DeLong, research and advocacy associate at the Consumer Federation of America. “We urge state insurance departments to study this problem, collect information on claims denials, and make that information public.” 

Important

Life insurers typically offer anywhere from 25% to 100% of your death benefit as an early payout if your policy has these riders.

What to Do If You’re Denied

You have recourse if a life insurer denies an accelerated benefit claim.

• Ask for a detailed denial explanation. Life expectancy disputes aren’t the sole reason an accelerated benefits claim gets denied. Your insurer also might have an issue with your diagnosis, claim submission, or physician certification, among other factors. 
• Appeal the decision. Be sure to do so within the required time frame, typically 60 days. Address the issues the insurer cited as the reason for denial.  
• Get a second opinion. Proof of life expectancy doesn’t have to come from one doctor or your treating physician. “Have many opinions and hopefully one of these doctors will support the claim,” Kadetskaya said. 
• Consider hiring an attorney to facilitate a timely appeal, though you should weigh attorney fees against your total expected benefits. 
• File a complaint with your state’s insurance department if you feel a denial was unjustified. “Include as much information as possible,” DeLong said. “They are in charge of making sure consumers are fairly treated.”

How to Protect Yourself Before a Crisis

You can also minimize the odds of a denial or financial constraints before you need the benefits.

• Understand your policy’s fine print. “Policyholders should be sure to check the life insurance contract to learn what terminal illnesses qualify and what else the insurer requires before filing a claim,” said Cornman from the ACLI.
• Gather thorough documentation. Filing all the paperwork an insurer requires with your initial claim can minimize the odds of denials and unnecessary delays.   
• Have adequate protection. Consider other important financial protections, like long-term care insurance or disability insurance, to avoid having to weather a medical crisis while cash-strapped.    

The Bottom Line

No one wants to have to handle a life insurance claim denial when they’re critically ill. Understanding the ins and outs of your accelerated death benefits can preclude this situation and minimize delays. If an insurer denies your living benefits claim, ask for a detailed explanation, obtain additional documentation supporting your diagnosis or life expectancy, and seek help from an attorney or regulator. 

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