In my last entry I discussed circumstances that might cause a life insurance claim to be denied during the first two years of the policy: fraud and material misrepresentation—and—suicide. I also discussed how a claim might be denied due to premiums not being paid. With only one exception, these are the only conditions that could allow an insurance company to refuse to pay a claim. The exception is that some states allow fraud to be a legitimate reason for claim denial or reduction even after the two year contestable period. If you lie about your age or smoking habits, or have an impostor take your medical exam, depending on the state, these may be cause for a claim denial or reduction at any time.
When a claim is denied as a result of premiums not being paid, if the insurance company failed to send premium notices to the policy owner, it is wise to consult with an attorney who specializes in insurance law to determine if there is a chance to overturn the claim denial.
There are situations that can cause a death claim to be delayed:
Death is the result of suspicious circumstances.
If there is reason to believe that one of the beneficiaries may have been involved in the death, the claim may be delayed. However, if the death is after the two year contestable period and the policy is in force, the death benefit will be paid (exception in some state could be fraud as stated above). State laws won’t allow it to be paid to the beneficiary who is convicted of a crime of having caused the death of the insured. Proceeds instead will go to other named beneficiaries or to the estate of the deceased.
Minor children named as beneficiaries.
When minor children are named as beneficiaries the insurance company must wait for the state courts to notify it to whom the proceeds are to be paid.
Ambiguity in beneficiary designations.
Adult children might be named as beneficiaries but it may not be clear to whom the proceeds should be paid if one of those children has died. Should that child’s portion be distributed to the surviving children, or to the heirs of that deceased child? And what about children that were born after the original designation was made? It’s important to let your agent know exactly how you want this handled, so the beneficiary designation is properly worded.
Delay of a payment does not automatically mean it is a refusal to pay. There are many reasons why an insurance company needs a little extra time to assure that the proceeds are being paid out correctly. In most states the company must pay interest during the time it holds the money.
If you think an insurance company is wrongfully denying a claim you should consult an insurance law attorney.
Next I’ll be discussing the history of life insurance company failures in the United States and how this effects policyholders of the failed companies.