Key Takeaways

It's unlikely that your life insurance claim won't pay out because death is hard to fake.
But the claim might get denied if you lie on your life insurance application.
The payout may also be denied if you pass doing something that goes against your policy's exclusions, like auto racing.

Life insurance payout in Canada: what is it?

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:

Paying for final expenses
Paying off a mortgage or other debts
Providing for your kids (ie. childcare costs or post-secondary education)
Day-to-day expenses to maintain your family's standard of living

Reasons life insurance won't pay out in Canada

First off, it’s rare in Canada for an insurance provider to not pay out a life insurance claim.

Most of the reasons a payout could be declined are easily avoidable, like providing inaccurate information on your application.

Main reasons life insurance claims are denied in Canada

Inaccurate information on the life insurance application.
Policy lapsed due to missed payment.
Policyholder passes away during contestability period.
Death by suicide in the first two years.
Beneficiaries aren't aware the policy exists.
You didn't update your beneficiaries or name a secondary beneficiary.
Cause of death is excluded in your policy.

1. 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.

Made a mistake on your application? We suggest contacting a customer advisor immediately. Fixing changes can be lengthy because your insurance provider might ask for documentation and proof to ensure you're not scamming them.

2. Policy lapsed due to missed payment

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.

3. Policyholder passes away during contestability period

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.

Honesty is the best policy! If you're completely honest on your application and something does happen during this period, there's no reason to worry about your insurance agency looking into your health.

4. Death by suicide in the first two years

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.

Mental health resources If you or someone you know is struggling with suicidal ideation, contact Talk Suicide Canada at 1-833-456-4566 or text 45645.

Misstatement of age clause: Lying about your age gives your insurance provider the right to cancel your policy and charge you a higher premium.
Spendthrift clause: This clause gives your insurer the right to hold onto the funds to protect the beneficiary against creditors. In this case, you may receive the claim in intervals.
Free examination period: A period where you can return your policy and still get a full refund of your monthly payments.
Grace period clause: A certain period of time where your insurer gives you a limited time not to pay your monthly payment while still being covered by your policy.

5. Your beneficiaries aren't aware the policy exists

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.

6. You didn't update your beneficiaries or name a secondary beneficiary

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.

7. Cause of death is excluded in your policy

Read your policy carefully to see what other exclusions may be in your agreement. These might include:

Death by homicide: The insurance provider won't pay out the death benefit if the beneficiary of the policy is suspected of being involved in the insured person's murder.
Death caused by illegal activities: Life insurance providers usually provide a list of things they won't cover called the "exclusion clause." This typically includes illegal activities. Since each policy is unique, it's a good idea to carefully read the fine print to see what exclusions apply to your coverage.
Death caused by war: Some life insurance policies exclude deaths caused by war. This is less common now, though, and many companies do cover war. Check your policy to see if it covers war-related deaths.

Should you be worried your life insurance claim won't get paid out?

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:

Insurance companies are under government regulation and monitoring to hold sufficient capital reserves to cover the policies they've issued.
Life insurance companies, on average, hold 239 percent in assets compared to their liabilities. This means your life insurance policy claims are planned and covered for.
You're also still covered in the (extremely!) rare case of a life insurance company's reinsurance company going bankrupt. Another company will likely take over your policy.
Reinsurance companies provide insurance to other insurance companies. So even if an insurance company loses their assets, their customers and their policies are still protected and can be paid out.

There are also organizations like Assuris, a Canadian non-profit that protects Canadian life insurance providers if their company fails.

How to prevent your claim from being denied

Here are the top things you can do to prevent your life insurance payout claim from being denied.

1. Be honest on your application

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.

2. Understand your policy's exclusions

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.

The best life insurance companies in Canada: get the breakdown.

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3. Keep up with your payments

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.

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Can I pick up my life insurance where I left off? If years haven't passed, you can go back to your life insurance provider to get your policy reinstated. They will ask a few questions to confirm your health is relatively unchanged.Once you pay your premiums for missed months, your coverage will be reinstated.

How do my beneficiaries make a claim?

Here's what you need to do if you are the beneficiary of a death benefit and the policyholder passes away during the term.

list of what you need to claim a death benefit

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:

Policy Information: Having as much policy information as possible is helpful when making a claim, but your loved ones can get away with just having your policy number. Your loved ones can also ask for this information from your life insurance advisor.
Proof of Death: When somebody passes away, a physician or coroner completes a certificate of death. This proof of death will be required to file a claim.
Claims Form: The claims form is also known as the “request for benefits.” In this form, they submit your name, policy number, and cause of death. They also declare their relationship to you and how they would like to receive the death benefit.

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.

What do I do if my life insurance claim is denied?

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:

Contact the insurer and get more information: Ask your insurer for an in-depth explanation of why you were denied, and document your conversations. Insurance policies are legal contracts, and the rights and responsibilities of the insurers and the policyholder are always written down. So if you were denied, there should be a clear explanation.
Once you know the reason you were denied, you can contest it: Appeal the insurance company’s decision in writing. All licensed insurers have a designated person/department assigned to dispute resolution, usually the Complaints Liaison Officer.
When making a complaint, make sure that it is: clear, informative, backed up by documented evidence, and timely.

This process can take time, so give your CLO time to investigate and formulate an answer.
Contact law firms specializing in financial disputes:
They will put together a case as to why your claim shouldn’t be denied.

Depending on their rates, it may be worth it if they are confident they can benefit you.
Contact the government:
As a final resort, you can also contact a federal institute like the Financial Consumer Agency of Canada if your claim is unresolved.

Bottom line: Your life insurance claim is very likely to pay out!

The main reasons that your life insurance might not pay out is tied to dishonest answers to the life insurance application, or the death occurring outside of the payment terms.
Most life insurance companies hold billions of dollars in assets, meaning they already have the money in the bank to pay the death benefit.
Make sure to read your policy carefully before signing it to make sure you understand all the nitty gritty details!

FAQ: When does life insurance not pay out in Canada?

How often do life insurers deny claims?

What is the average life insurance payout in Canada?

How long does it take for life insurance to pay out in Canada?

What is the time limit to claim a death benefit?

Does life insurance cover suicide?

Do life insurance cover risky lifestyles?

Does life insurance cover drug overdose?

Will my death benefit be paid out if I die in a car crash?

What happens if you are denied life insurance?

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/