When are they cut off and will your life insurance company tell you?
As our children grow and turn into adults, many things change. Among those changes are the way insurance companies view your relationship with your children. Many different types of policies limit coverage once an adult child hits a certain age. Others cut off insurability of the child once that person is supporting themselves financially.
The world of life insurance is no different. Unfortunately, however, life insurers have proven to be woefully uncommunicative when it comes to the issue of cutting off policy benefits for adult children. In fact, such was the case for one family out of New York, who found out the hard way that just because an insurance company collects premiums does not mean they will pay valid claims.
As attorneys who specialize in the denial of life insurance claims, we see these issues arise all the time. We therefore thought it would be beneficial to review the facts of this particular case as a cautionary tale of the games life insurance companies play in order to stay profitable.
Life insurance for the whole family … maybe
The case involved a woman named Sheila. Sheila was employed as a teacher at a private high school that offered very generous employee benefits. One of those benefits was a life insurance plan that covered employees as well as their families.
Sheila chose a life insurance policy for herself, her husband, and her daughter, Sara. All premiums were automatically paid out of Sheila’s paycheck. At the time Sheila purchased the plan, Sara was 17 years old.
Unbeknownst to Sheila, the fine print of the life insurance policy contained a limitation on the insurability of adult children. Specifically, it allowed a parent to maintain a life insurance policy on an adult child up until the age of 19. If that child was a full-time college student, however, the parent could maintain coverage through the age of 24.
In 2014, Sara turned 25 years old. She remained a full-time student as she was studying for her Master’s degree in American Literature. When Sara turned 25, Sheila didn’t even think to review Sara’s life insurance policy. In fact, since the premiums were always paid right from her check, she never gave the policy a second thought. She simply continued to pay the same amount she always had.
At no point did Sheila’s life insurance company notify her that Sara was no longer insurable. Nor did it take any action to cancel Sara’s policy. It did, however, continue to collect premiums on Sara’s policy after she turned 25.
When Sara was nearly 26 years old, the unthinkable happened. Sara was killed in a car accident while she was traveling across the United States. Sheila and her husband were understandably devasted. Nevertheless, three weeks after Sara’s death, Sheila made a claim against the life insurance policy she had taken out on her daughter nearly nine years earlier. Sheila never anticipated what came next.
A shocking denial letter
A few weeks after Sheila submitted her claim, she was shocked to receive a claim denial letter from the life insurance company. In it, the insurer claimed that Sara’s period of insurability had lapsed on her 25th birthday. The company claimed they had accepted premiums on Sara’s policy over the past two years as a “mistake” and sent a check intended to reimburse Sheila for those premium payments. Aside from that, they outright refused to pay anything.
Sheila’s next move was a critical one. She sought the advise of an attorney who specialized in life insurance claim denials. Unfortunately, this was not the first time he had heard of a life insurance company accepting premium payments and then denying that a policy existed. On the bright side, he had successfully contested claim denials on that basis previously. He advised her not to cash the check intended to reimburse the premium payments and agreed to take on her case.
When the attorney contacted Sheila’s life insurance company, they refused to budge. Consequently, the lawyer filed suit on Sheila’s behalf. The case went all the way to the United States Court of Appeals for the Second Circuit. That court ruled entirely in Sheila’s favor.
The court found that the insurance company had acted in bad faith when it accepted premiums for two years on a policy it would later deny. It also found that the policy language was unclear with respect to whether the insurance company had a duty to notify Sheila when Sara’s policy was terminated. Since the insurance company was the party that drafted that language, the court construed it against them – finding that the insurer did have to give notice of policy termination.
Since Sheila’s life insurance company had not given such notice and had continued to collect premiums, the court found that the policy was in place at the time of Sara’s death. The court ordered the life insurer to pay Sheila the full $100,000 death benefit she was owed, plus interest.
Never accept a claim denial at face value
While it is a good idea for people with life insurance policies to know and understand their policy terms and limitations, the truth is that most people never truly study those long-winded contracts. Indeed, aside from taking steps to procure a policy, most consumers never even think about their life insurance at all.
Life insurance companies know this and therefore they include clauses that are specifically designed to give them an “out” any time a policy beneficiary submits a claim. Lamentably, many consumers simply accept the insurance company’s claim denial letter and never pursue the money that is owed to them. That is a mistake.
Our firm specializes in contesting life insurance claim denials. We know every trick life insurance companies use to deny claims and we work to successfully overcome those denials every single day. If you’ve had a life insurance claim denied, please call us. We’re here to help.