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Key takeaways:
The life insurance payout (or "death benefit") is a tax-free lump sum paid to your beneficiaries if you pass while your life insurance policy in Canada is active.
Your beneficiaries can use these funds however they see fit, including:
First off, it’s rare in Canada for an insurance provider to not pay out a life insurance claim. Canadian Premier, for example, has paid 99% of Term Life claims.
Most of the reasons a payout could be declined are easily avoidable, like providing inaccurate information on your application.
It is considered intentional misrepresentation if you withhold information or lie to get a more affordable premium during your application process. If you claim not to be a smoker, for example, but the life insurance medical exam during your application reveals years of smoking, that's misrepresentation.
There are a few outcomes if it's revealed you intentionally lied. The best-case scenario is paying higher life insurance rates if this misrepresentation is revealed before you're approved. If not, companies may deny coverage.
You need to make payments on life insurance to keep it active or your policy may lapse. So if something happens to you and you have missed payments, the insurer can deny your claim.
Policies often lapse because premiums are too expensive for the policyholder to keep up with. This is especially true for permanent life insurance policies, which can cost up to seven and a half times more than a similar term policy.
A contestability period is a set timeframe. This is usually one to two years after your policy is put into place. If you pass during your policy's contestability period, the insurance company might reevaluate your policy.
This ensures you don't misrepresent yourself during the application process and protects the insurance companies from fraud.
This is the norm for life insurance policies in Canada, including with PolicyMe. If you die by suicide within the first two years of your policy being in place, most policies won't pay out your death benefit.
A life insurance policy does cover death by suicide if it happens after you have held the policy for over two years.
Sometimes beneficiaries don't know their loved ones have a life insurance policy. And when that happens, the person you named your beneficiary won't claim that benefit. You would be surprised how often this happens.
We always recommend being transparent with your loved ones if you name them your beneficiary. It saves them the hassle and ensures they're financially protected as you intended!
If a loved one forgets to let you know you're the beneficiary, you can also search for a lost policy using OLHI search tool.
If you have forgotten to name your beneficiaries, the insurance won't always be passed down to your family. Instead, it will be used to pay for your estate first.
If any remaining insurance money is left, the rest will go to your family; usually, it's not much.
To avoid this, it's a best practice to name primary and secondary beneficiaries. That way, you can be sure the money you're taking out to protect your loved ones does just that.
Read your policy carefully to see what other exclusions may be in your agreement. These might include:
Short answer, probably not. If you're honest on your application and pay your premiums, you'll face no real issues when it comes time to make a claim.
There are two main worries that people tend to have about the payout; that the claim will be denied or that the insurance company will go under and be unable to payout.
Both of these scenarios are unlikely. Here's why:
There are also organizations like Assuris, a Canadian non-profit that protects Canadian life insurance providers if their company fails.
Our policies are issued by Canadian Premier Life Insurance Company. They have been operating for more than 60 years in Canada, with over $300M in assets and $40M in claims paid (across all product lines) in 2020.
Your life insurance with Canadian Premier and PolicyMe is backed by significant financial strength. Plus, Canadian Premier has approved 99 per cent of claims since 2019, so can rest easy knowing your claim will be in good hands.
Need additional pointers to get the most out of the protection you're securing for your family? Chat with a non-commissioned advisor.
Here are the top things you can do to prevent your life insurance payout claim from being denied.
This one is pretty simple. If you’re honest with your life insurance provider throughout the application process, it makes it near impossible for them to deny your claim.
The majority (of a tiny amount) of declines happen due to intentional misrepresentation. If you are as honest as possible about your medical condition from the start, you know misrepresentation won’t be an issue.
There is the option to get no medical life insurance, which requires no medical exam or questions. But no medical insurers charge higher rates since they can't properly assess your risk level based on your health condition.
Every life insurance policy has exclusions. For the most part, it's just death by suicide within the first two years. But life insurance is a pretty personal product.
Make sure you fully know the exclusions on your policy to avoid this, not just the exclusions you've heard of. Each policy is unique. For example, if you have a high-risk hobby like professional skydiving, your policy may have an exclusion for death in a skydiving accident.
When you know what your exclusions are, you know what actions will prevent you from receiving a claim. You'll also know for sure if you're eligible for the death benefit, minimizing the chances of disappointment.
Want to learn more about different life insurance providers and their offerings? Read our guide on the 20 best life insurance companies for Canadians.
When you stay up to date on payments, you don’t need to worry about your policy lapsing when you need it most.
If you miss one payment by mistake, don’t panic! This doesn’t mean your insurance policy is entirely void and you need to restart the application process.
Most life insurance companies have a 30 day grace period. If you miss a payment, the company will let you know and allow you to make it up in that window. You can even opt for a double payment at your next premium due date.
In the case you go beyond the 30 day mark and don’t make the next payment, you no longer have coverage.
Here's what you need to do if you are the beneficiary of a death benefit and the policyholder passes away during the term.
1. The first thing you want to do is contact your life insurance advisor if somebody passes away and you were a beneficiary of their life insurance.
2. From there, they will give you a list of documents you need and forms to fill out. Here are some of the documents and forms you can expect to need or to fill out:
3. Once you gather all this information and share it with the life insurance provider, they will do some policy checks. This includes things like checking if the policy is still active before putting the claim through.
4. From there, your only job is to wait for the claim to be processed. You can answer any questions the life insurance provider may have along the way.
There is no hard and fast rule on how long processing a claim takes. Life insurance companies tend to try to pay out as soon as possible. You can expect it anywhere between a few days to upwards of 60 days, depending on your situation.
With PolicyMe, making a claim is simple. You'll get a dedicated adjudicator who will review your claim and help you navigate the process, so you can focus on being with your family.
If you are denied, you should be provided with a very clear reason. The insurance company needs to share the exact reason why they deny coverage claim.
Here’s what you can do:
Only around four per cent of life insurance claims are denied . The most common reason is usually misrepresentation on your application.
Claims might also be denied for other reasons, like suicide during the first two years of the policy, illegal drug overdose, or if the policyholder passes away while doing something illegal or excluded from the policy.
The average Canadian household has $458,000 in coverage, according to CHLIA. But the right amount of coverage will depend on you, your loved ones, and your lifestyle. To get a better idea of what that number will be for you, use a life insurance calculator.
It usually takes a few weeks a few weeks for life insurance to pay out after a claim is made. In the event you pass away during your term, your beneficiaries will make the claim to your life insurance provider. They'll receive a payout, also known as a "death benefit," equal to the coverage you purchased. This death benefit is paid in a tax-free lump sum.
In general, there is no set time limit to make a claim, but it is important to do so as soon as possible after the death to avoid any delays or complications.
Most insurance companies recommend that beneficiaries make a claim within a few weeks to a few months after the death occurs.
In general, life insurance policies do cover death by suicide, but there may be certain restrictions or limitations.
Most life insurance policies have what is called a "suicide clause" which states that if the policyholder dies by suicide within the contestability period after the policy is purchased (typically two years), the death benefit may not be paid out.
This is to prevent people from taking out a policy with the intention of claiming the death benefit immediately.
Life insurance policies may have exclusions or limitations for death depending on the person seeking life insurance. For example, someone who is an avid skydiver might have an exclusion clause of their death claim not being paid out in case of a skydiving accident as they're placed under a high-risk category. If you have a dangerous hobby, a good way to assess your eligibility is through a life insurance application.
If a policyholder dies as a result of illegal drug overdose outside of the contestability period, it is often a reason for the life insurance company to void your claim.
Accidental drug overdose on prescribed medication is usually covered. But can be investigated as a reason to deny your claim if the reason for taking this medication was not disclosed to your insurance provider.
You would be surprised how often we get this question but the answer is, usually yes. You should receive the death benefit payout from your life insurance company if the policy was still in effect and you kept up to date with your payments (as we previously mentioned).
However, the specifics of what is covered and any exclusions or limitations depend on the terms and conditions of your particular policy, so it's important to review it carefully or ask your insurance provider.
What happens if you are denied life insurance?
Being denied life insurance can feel like a curveball, but it’s not the end of the road. Insurers typically deny coverage if they think your health, lifestyle, or age poses a higher risk. For example, a recent serious medical diagnosis or a history of risky activities (like skydiving or smoking) might raise red flags.
If you’re denied, take it as a chance to regroup. Ask the insurer why—they’re required to explain their decision in Canada. It might be a good idea to work with a broker who knows the Canadian market to find companies with more flexible underwriting.
Our sources:
CLHIA-ACCAP - Canadian Life and health insurance Facts - 2020. (n.d.). http://clhia.uberflip.com/i/1287746-canadian-life-and-health-insurance-facts-2020/9?
Dave, P. (2022, March 30). Life Insurance Clauses Determine Your Coverage. Investopedia. https://www.investopedia.com/articles/pf/06/lifeinsuranceclauses.asp
Dispute Resolution. (n.d.). Insurance Bureau of Canada. http://www.ibc.ca/nb/resources/consumer-resources/dispute-resolution
Lam, J. (2022, September 2). What are the reasons a life insurance policy won’t pay out? Insurance.com. https://www.insurance.com/life-insurance/life-insurance-basics/mistakes-that-kill-claims.html
Search for policy of a deceased | OLHI - Free, impartial help with your life & health insurance complaints. (n.d.). OLHI - Free, Impartial Help With Your Life & Health Insurance Complaints. https://olhi.ca/insurance/search-for-lost-policy/
