While it may seem shocking, insurance company sometimes contest a life insurance beneficiary’s right to a life insurance claim. There are a number of various reasons why a life insurance policy may be contested after the death of the life insurance policy holder, and it is not shocking for an insurance company to look for any legal reason it can to not pay out a benefit.
Typically, upon the death of the life insurance policy holder, the life insurance benefits are paid out within several weeks of the death of the insured. However, there are many reasons why an insurance company may delay or outright refuse to pay out a life insurance claim. Below are various circumstances where an insurance company may contest a life insurance claim.
What if the Life Insurance Policy was Not Active at the Time of Death?
The most common reason for an insurance company refusing to pay out benefits to a life insurance beneficiary is that the policy holder did not pay their full premiums or had missed payments.
Although there are many types of life insurance policies, all of them require a steady payment of premiums to remain active. Thus, if a payment is late, a premium is missed, or a term life insurance policy’s term has ended, then this can invalidate the entire claim, even if the policy holder had been steadily paying the premiums for years.
However, non-payments of premiums does not automatically allow an insurance company to deny life insurance benefits. Even if the premiums on the life insurance policy were not currently being paid, the insurance company may have failed to send the necessary notices of cancellation or prove that it sent such notices, which may allow you to recover on the policy as the beneficiary. In fact, many states have rules that require insurance companies to offer clients a chance to renew their term policy before they are allowed to cancel it.
What if the Policy was Less than Two Years Old and is Contestable or Fraudulent?
Another reason an insurance company may contest a life insurance policy is that the policy is within the two year contestable period. Most insurance companies have a two year contestable period when activating a new policy, meaning that if an insured dies within two years, the company may rescind the policy entirely upon a finding of fraud or misstatements made in the original application.
For example, if in an application the life insurance applicant states that they are a non-smoker, but dies from lung cancer 6 months later, an insurance company may contest the life insurance policy for misstatements made on the original application and likely fraud by the applicant.
These misstatements must be material. This means that they must be of great enough nature that if known by the insurance company they could have terminated or significantly altered the insurance agreement. Examples of non-material misstatements include simple misstatements such as one’s height, eye color, or birth date.
It is important to note that sometimes an insurance agent may add an additional 2 year contestability period to an existing policy if the policy holder purchases additional coverage or reduces their coverage.
Further, you should understand that the test for what is or is not a material misstatement is subjective. Therefore, it is in your best interest to not give up if you find yourself in this situation of an insurance company contesting benefits.
As for insurance fraud, most fraudulent applications must be discovered within two years for the company to rescind a policy. As noted above, many states do not allow you to lie about your age, smoking habits, or to send in an impostor for your medical exam. These would typically be considered material misrepresentations in the original application for life insurance.
If fraudulent misrepresentations in the life insurance application by the insured are discovered at the insured’s time of death, an insurance company may, depending on the state, refuse or reduce benefits.
What if the Insured’s Death was the Result of Unusual Circumstances?
Typically, a life insurance company will refuse to pay out benefits if there are “unusual circumstances.” Examples would be if there is reason for them to believe that one of the beneficiaries may have been involved in the death of the policyholder, or that the insured committed suicide.
Almost every insurance policy contains clauses that exempt coverage for people who commit suicide, with the result being that no benefits are paid out to any beneficiaries. Further, there are accidental life insurance policies that do not allow payment of benefits because the insured died of causes that aren’t covered by the policy. For instance, there may be a clause in a life insurance policy that does not pay benefits if the insured was intoxicated at the time of death, accidental or not.
In the case of homicide, a life insurance representative will almost always call to ensure that no beneficiary of the life insurance policy is a suspect to the homicide. If the insurance company learns that a named beneficiary to the policy is a suspect in the homicide case, they may withhold payment of benefits until the charges against that beneficiary are dropped.
What if the Details of the Life Insurance Policy are Ambiguous?
Usually, a life insurance policy will name the policyholder’s children as beneficiaries. However, if the children die, leaving behind their own children, there are typically questions as to whether the grandchildren get the share their parents would have gotten, or if benefits should it be split up among the remaining heirs of the policyholder.
For instance, what if if only some children are named in the policy, but the others were born after it was written, should they have a share?
An insurance company will usually try to determine who should receive the proceeds in situations like these, unless these situations were addressed in the policy by the insured. If this cannot be done, the insurance company will withhold benefits until they receive an order from a probate court regarding how the life insurance policy should be divided.
In situations like this, a probate attorney will be essential if you are to fight for your claim of the benefits, as the insurance company will likely rely on the probate court to determine the division of the life insurance proceeds.
Should I Hire an Attorney If I Have Issues with a Contested Life Insurance Policy?
Many families have been faced with an insurance company contesting or entirely refusing to pay benefits from their loved one’s life insurance policy.
If you are being denied payment of benefits as a named beneficiary for your loved one’s life insurance policy, or you believe that an insurance company is wrongfully denying your claim, you should absolutely seek out a well qualified and experienced insurance law attorney.
