15 Things You Should Know About Your Life Insurance Policy and Life Insurance Claims
A life insurance company got a letter from an elderly lady. It read, “I’m sorry, but I have to cancel my husband’s life insurance policy. He died last year and I cannot afford to continue paying his premiums.” Joking aside, life insurance companies often look for reasons not to pay claims whenever possible.
Life insurance is a form of insurance which pays benefits upon your death if you meet certain criteria. Generally, as long as your policy was in place for at least two years before you die, the life insurance company must pay out the full benefits if the policy premiums are current. Many disputes arise when the insured dies within two years of taking out the policy. As an attorney, I’ve represented many beneficiaries in life insurance disputes and helped get their claims resolved. The purpose of this article is to go over some common parts of your life insurance policy, common issues which arise and how to protect yourself to make sure the policy pays out if you die while the policy is in effect.1. Verify the Type of Life Insurance Policy you Have and Whether There is an Expiration Date
Life insurance comes in many forms. There is “term life insurance” which provides coverage should you die during the “term”. The end of the term is seen as an expiration date where the policy automatically cancels itself. You do not get a refund of any premiums paid generally. “Universal life insurance” is a type of permanent life insurance which remains in effect throughout your life, with no expiration period. Premium payments accumulate a cash value and will help cover unpaid monthly premiums at times, and may also allow you to take loans against the policy which reduce the total payout once you die. “Whole life insurance” is another type of permanent life insurance which remains in effect during your entire life, and generally requires monthly premiums to remain active.
Make sure you understand what type of insurance policy you have so you do not become uninsured, or at least you are informed of any expiration date.2. You may Reset the “Contestability Clause” When Switching Life Insurance Companies or Changing Coverage Limits
Most life insurance policies have a two-year contestability clause which allows the life insurance company to contest your policy if you die within two years of the policy’s effective date. This allows the insurance company to review all of your prior medical records, speak with your doctors, analyze your application, and otherwise look for any reason not to pay. When you amend your policy, add or change coverage, or change insurance companies, you may restart the two-year contestability period even if you already passed it before changing coverage or companies.3. Life Insurance Generally Covers Most Deaths, Even Suicide and Accidents
A life insurance agent once said, “If you are going to kill yourself, just wait two years.” Subject to the two-year contestability clause, most life insurance policies will pay full benefits for suicide and accidental death. In fact, some policies even have a specific suicide clause affording coverage.4. If Your Agent Makes an Error on Your Policy, you may Still get Coverage
If your Agent assists you with completing the application for life insurance, the Agent generally has a duty to accurately write down your answers before submitting it to the insurance company. If your Agent makes an error and the insurance company tries to deny coverage because of the error, you still may be entitled to coverage. Some Agents haphazardly fill in applications for their customers and are more concerned about their commissions than coverage. When an Agent negligently misleads a customer in the application process, the insurance company may be “estopped” from relying on resulting errors in the application to deny or revoke coverage.5. An Independent Agent can Still Bind the Insurance Company to Coverage if They Make Errors and Omissions on the Policy Application
An Independent Agent may not really be independent. Where an insurance company provides unaffiliated agents with certain insurance business materials that identify the agents with the company and then accept business from them, they may be held responsible to the insured just as if they had lawfully and formally appointed the agent as their own. Courts will often look to see whether the Agent made it seem to a reasonable person that there is an actual agency relationship, like providing blank forms, applications, and stationery.6. You Generally Have a Duty to Amend Your Application Between the Application Date and Effective Date
A coverage dispute often arises where someone applies for life insurance and answers questions about their medical history accurately, but their medical condition changes prior to the insurance company accepting the application and making coverage effective. The insurance company generally must have something in their policy application or policy itself requiring the continued duty to amend in order for the exclusion to apply. Also, even if you did not amend your application and your health got worse before coverage became effective, you may still be entitled to coverage if the insurance company waives this provision, fails to raise it as an issue, or fails to dispute it within the two-year contestability period.7. The Insurance Company Bears the Burden of Proving That Coverage Does not Apply
If the insurance company seeks to avoid, rescind or otherwise disclaim coverage of life insurance, they must generally prove that there was a misrepresentation, omission, concealment or fraudulent statement, and that the statement was material to acceptance of the risk assumed by the life insurance company. The insurance company generally must also prove that they relied on the misrepresentation to its detriment and that the misrepresentation was material.
What does this really mean? Misrepresentation may still get you coverage, as long as it is not material.8. Misstatements of Age or Sex on the Insurance Policy Application do not Void Coverage
Many states will not void coverage because of a misstatement of age or sex on the policy application. In Florida, for example, the life insurance company may make adjustments to the amount payable or benefit accruing under the policy.9. Even if Your Policy was Canceled for Non-Payment of Premiums, the Insurance Company may Have to Reinstate the Policy if you pay the Prior Amounts due
If your life insurance policy was cancelled for non-payment of premiums, the life insurance company may be legally obligated to reinstate the policy if you pay any overdue payments and show evidence that you are still insurable. There may be a time limit to do this, but it could be as much as three years or more after the non-payment of premiums. Also keep in mind that the reinstatement may restart that two-year contestability clause as to any misrepresentations or fraudulent statements on the reinstatement application.10. Don’t Expect Your Life Insurance to Pay for Your Funeral
Life insurance often requires conditions which must be satisfied in order to get your money when someone dies, and this could take weeks or months to finalize. Obviously, most funerals and burials take place within days or a week of the person’s death. While you can apportion a percentage of your life insurance benefits to someone who you wish to pay for your funeral, there really is no requirement that they even use that money for your benefit if not designated in your life insurance policy. One major problem with even having money designated for your funeral is that you must often file proof of death, like a death certificate, which takes about 10 days or more to become available. Then the life insurance company may take another few weeks to send your check, even in uncontested cases. Unless your loved ones are willing to lay out the money for your funeral or burial, don’t expect your life insurance proceeds to be available within the first few weeks after you die.11. You may Have a Grace Period to pay Your Premiums Before Coverage is Terminated
Some policies allow at least a 30 day grace period to make your premium payments before they are considered overdue. This allows you more time if you have financial hardship during a given month, like those caused by a sudden loss of a job or emergency medical condition.12. Your Insurance Company may owe Interest on Your Life Insurance Benefits
Once the life insurance company receives proof of the claim and evidence of death, they must pay the benefits, absent a dispute. If they delay payment, they should include payment of interest on life insurance benefits to you from the date they received the claim and evidence of death through the time when they make the payment.13. You can Sell Your Policy for Cash While you are Alive
Circumstances change and people change as we get older. Whether you need the money to live on or don’t feel the need to leave money to your previously chosen beneficiaries, some states allow you to sell your life insurance policy to another person or company for cash, called viatical settlements. This is different than cashing in your policy for the cash value and essentially cancelling your policy. With viatical settlements, a company may offer you money and basically bets against your life. Some states prohibit this, while others allow it. There are certainly moral concerns, but let’s say someone is elderly and their spouse dies. They have no children and are sick, but are able to function. They don’t care about charity and want to enjoy the rest of the time they have left. If they have a $250,000.00 Universal Life Insurance policy which remains active until they die with a small accumulated cash value, like $15,000.00, a viatical settlement provider may offer them $50,000.00 or more while turning in the policy would only give them $15,000.00.
The viatical settlement provider may look at your medical records and overall health, calculate how long they think you have left to live, and make you an offer to take over your life insurance policy or become the beneficiary in exchange for a partial payment of the policy limit. They basically hope you die sooner so they can pay less in premiums, but this could be an option for you instead of cashing the policy in with your life insurance company. It may give you a lot more money to play with while you are alive.14. The Insurance Company may Have to prove What the Deceased Person Actually Knew and Believed
When an insurance company tries to cancel or rescind a life insurance policy, they often look at the application to see whether there were actually misrepresentations or omissions. Since the burden is on the life insurance company to prove the material misrepresentation, they may have an uphill battle.
Some policy applications have the applicant sign that the answers were true and correct to the best of their knowledge and belief. Think about the challenge an insurance company will have to prove what the person knew and believed when the application was completed. The only one who knows what was believed will be dead at that point.15. Life Insurance can be a Great Gift for Your Loved Ones if you Qualify
Life insurance is a great benefit for you to pass to your loved ones. It can help provide financial support and stability after you die, and can provide financial assistance to reimburse loved ones for your funeral and burial expenses. Life insurance, like other insurance, is still a business. The life insurance company will often make you prove you are entitled to coverage, rather than paying out as they are supposed to under the policy.
If you have a life insurance claim which is denied or delayed, contact a life insurance attorney with significant experience in life insurance cases to learn about your rights and see if you are entitled to all or a portion of the life insurance proceeds. The best part is that most attorneys who handle life insurance dispute cases, like me, handle these on a contingency fee so you don’t have to pay any money out of pocket to fight the insurance company. As a Victim’s Rights Attorney with great experience in life insurance claims, I take great pride in walking my clients through their life insurance dispute and fighting to get them the coverage they are entitled to.
(c) 2013. Jason Turchin, Esq. All Rights Reserved.