Insurance Companies occasionally make headlines because of claims they refuse to pay. But, those news stories are usually about health, disability and property and casualty insurance claims. The company is probably contesting, stating that there has been no bone fide loss covered by the policy.
But life insurance is a different story. Dead is dead! If the policy says the insurance company will pay a lump sum of money to your beneficiary when you die, that should be pretty simple to prove and the claim should be forthcoming without need for a legal skirmish. Well, for the most part that is true, but here are a few situations that might not be quite that simple:
- The policy is less than two years old.
Most life insurance policies will have a two year “contestable period.” If death occurs during this two year period the insurance company may rescind the policy if it discovers fraud or material misrepresentations were made in the application for insurance. Notice that the misrepresentation must be material so misstating your height by an inch isn’t material, but concealing a history of cancer is most likely material.
During this contestable period the insurance company could also refuse to pay the claim and rescind the policy if death were the result of suicide. After the contestable period suicide is covered.
When death occurs during the contestable period, the insurance company will likely conduct an investigation to determine if there are any facts that could give cause to contest the claim. This may take a little more time than a normal claim, but interest will be credited to any death benefit ultimately paid.
- Was the policy actually “in force” at the time of death?
If the required premium was not paid in a timely fashion the policy might not be in force. I say might not be because policies with cash value might be continued. With a Whole Life policy it is possible that the missed premium was paid through an automatic premium loan provision. With a Universal Life policy, even though premiums have not been paid, the death benefit may be continued if the cash value is sufficient to pay for the monthly Cost of Insurance and contract charges.
If a premium is not paid by the due date and death occurs within the grace period, the death benefit should be paid, subtracting the unpaid premium from the death claim. Grace Periods on Term and Whole Life are usually 30 days and on Universal Life are usually 60 days.
Even if you find a very old policy that you thought had lapsed—even one that is found years after death of the insured—always check with the insurance company’s claims department. There are many case histories where this has resulted in payment of a valid claim.
This subject will be continued in my next entry including when to contact an attorney.