If you’re reading this article, you have probably learned that someone you love has named you as the beneficiary of their life insurance policy. In some instances, this may seem like a kind, yet meaningless gesture – if, for example, the policyholder is young and in relatively good health.
As attorneys who specialize in the wrongful denial of life insurance claims, we’re here to tell you that even if your loved one appears to be decades away from death, there are things you need to know about the policy today. Not to be too morose, but life throws curveballs all the time. It’s better to be prepared for something you don’t need than to be caught off guard when the worst happens.
Accordingly, we’ve compiled the following list of things you (and the policyholder) should know if you have been named as the beneficiary of someone’s life insurance policy:
#1: Who is the insurance company and how do you contact them?
In many cases, a person names their spouse as the sole beneficiary under their life insurance policy. In that situation, the surviving spouse usually has access to the deceased person’s important papers such as a life insurance policy.
But what if you have been named as the beneficiary of a life insurance policy owned by someone who is not your spouse? If someone cares about you enough to tell you that you are there named beneficiary, you should feel comfortable asking a couple of questions. First, what is the name of the insurance company? What is the policy number? In the event your loved one passes away, you will need this information in order to file a claim.
Understand that a life insurance company will not come looking for a beneficiary. In fact, in most instances they don't even know when a policyholder dies. It is completely up to the beneficiary to notify the life insurance company of the death and to submit a claim for benefits.
#2: Are there any activities the policyholder might engage in that will destroy coverage?
Many life insurance policies include what is known as an “inherently dangerous activity exclusion.” This exclusion relieves the insurance company from having to pay out on a claim if the policyholder dies while engaging in an activity that is unreasonably dangerous.
Legitimate life insurance companies will tell you which activities come within this policy exclusion. Common examples include things like SCUBA diving, sky diving, motorcycle racing, and bungee jumping. If you are in a significant relationship with the policyholder and your financial security depends on a life insurance payout, the two of you may want to have a conversation about avoiding these activities.
#3: Who pays the premiums on the policy and how often are they paid?
In many cases, a life insurance policy is a benefit of employment. In that scenario, the employer may pay all or part of the policy premiums. As a designated beneficiary, you will want to know whether policy premiums have been paid in full and on time.
In some cases, for example, a policyholder is responsible for their own premiums. If that person becomes incapacitated and unable to pay their own bills, policy premiums may be skipped. The last thing that person probably wants is for the life insurance policy they’ve paid on for years to lapse due to non-payment.
As such, if someone informs you that you are the beneficiary under their policy, the two of you may want to discuss who will take over paying their bills if they are rendered unable. Again, if you are the spouse, this duty may fall on you naturally. If not, it is probably something you should discuss.
#4: What is the period of contestability?
Did you know that most life insurance policies contain what is known as a “period of contestability”? What this basically means is that if the policyholder dies during the first two years of the policy, the insurance company can undertake a thorough investigation to determine if it has a valid reason to deny your claim.
Valid reasons for claim denial include things like: (a) failing to disclose a significant illness when applying for insurance; (b) failing to disclose unhealthy habits such as smoking or hard drug use; or (c) participating in dangerous activities the policy expressly prohibits (such as motorcycle racing or skydiving).
If you are the beneficiary of a life insurance policy and the insured passes away within two years of the policy becoming effective, be prepared that payment on your claim may be delayed while the insurance company performs its investigation.
#5: What if someone else thinks they are the beneficiary under the policy?
In some instances, multiple people may believe they are the rightful beneficiary under a life insurance policy. This happens, for example, where the policyholder has been married multiple times. The first spouse may believe they are the beneficiary when the second (or third, or fourth) spouse is the one actually entitled to benefits.
If someone besides you makes a claim under a life insurance policy, the insurance company won’t make its own decision about who it should pay. Instead, it will likely file a lawsuit called an “action in interpleader.” In this unique process, the insurer is basically asking the court to decide who it should pay. If you’re served with such a lawsuit, you’ll want to talk to a lawyer and determine what kind of evidence you may have to prove you are the rightful beneficiary.
It is an unfortunate reality that not all valid life insurance beneficiaries get paid the first time they submit a claim. Sometimes, the reasoning for a claim denial is valid. Often, however, it is not.If you or a loved one are facing a life insurance claim denial that just doesn’t sit right with you, please call one of our attorneys to discuss the situation. Even if you’ve prepared for every scenario outlined in this article, you still may face a bumpy road when it comes to getting paid. We can help you get the money your loved one intended for you. Call today. We’re here to help.