There are people in life who run to the doctor with every little ache or pain and then there are those who will do nearly anything to avoid going to the doctor. Most of us fall somewhere in between those two extremes. The truth is, some medical conditions are so complex and subtle that they can be taking a toll on your livelihood for years without you even knowing it.
This is unfortunate from a health and wellness standpoint, of course. Did you know, however, that your ignorance about an underlying health condition can also jeopardize your family’s financial well-being? This is particularly true when you are suffering from an unknown condition at a time when you are also applying for life insurance. To explain this concept fully, we first need to explain a little bit about how the life insurance industry works. We will do so by using a real-life example.
The life insurance application
Under most life insurance plans, a person has to fill out an application before they will be granted a policy. The thoroughness of these applications differ but most require the applicant to reveal several things about their health history, as well their current medical condition.
In the sample case we’re presenting in this article, the life insurance applicant was named Jorge. Jorge was 47 years old, recently remarried, and his wife had three children from a previous marriage. Jorge was a civil engineer. He had recently joined a new engineering firm which offered life insurance as an employment benefit. Before he became eligible for the policy, he had to fill out a health questionnaire for the insurer.
In response to the application questions, Jorge revealed the following: (a) he was 5’10” tall and weighed 176 pounds; (b) the only surgery he ever had was to remove his appendix; (c) he had no chronic health conditions.
The information that the questionnaire did not elicit, however, was this: Jorge was deathly afraid of doctors and had not even gone for a check-up for over a dozen years. He said he had “no chronic health conditions” because he had not been diagnosed with any. How could he without ever going to the doctor? In truth, Jorge had chronic pain in the lymph nodes in his neck, had lost 35 pounds without trying over the course of a year, and was frequently exhausted. The questionnaire didn’t ask for that level of detail so Jorge didn’t offer it.
Why truthfulness matters in a life insurance application
Before we discuss Jorge’s case further, let’s talk for a minute about the importance of truthfulness in a life insurance application. A life insurance policy, at its core, is a legal contract between the insurance company and the insured. As such, the law requires that both parties be truthful with one another in negotiating the terms of the contract. In the life insurance context, that means the applicant has to be truthful in filling out any application paperwork.
This is not an insignificant obligation. In fact, basic contract law holds that if one party is untruthful during contract negotiations, and that untruthfulness leads the second party to enter into a contract he would not have otherwise entered, the second party can later avoid his obligations under the contract. That is because the contract is said to be based on a “material misrepresentation,” (also known as “fraud”).
Taking this back to the life insurance arena, that means that if an applicant lies about his health condition in his life insurance application, and those lies cause the insurance company to issue a policy it would not have issued had it known the truth, the life insurer may not have to pay a death benefit when the policyholder dies. As you can imagine, there are a million different ways this can play out after a policyholder’s death.
What about Jorge?
In Jorge’s case, the truth was that he was suffering from a slow-progressing form of leukemia. Though he likely had the disease when he filled out the life insurance application, it wouldn’t kill him until two years after the policy was issued – at age 49. Because he was so afraid of going to the doctor, Jorge remained unaware of his condition until shortly before he passed away.
After Jorge died, his widow submitted a claim to his life insurance company. The company immediately responded by saying it planned to undertake an internal investigation to determine whether Jorge had made a material misrepresentation in his life insurance application.
After six months and despite numerous phone calls, the life insurer still hadn’t made a decision on Jorge’s wife’s claim. At that point, she contacted an attorney who specialized in the wrongful delay and denial of life insurance claims. The attorney read all of the correspondence from the insurer and immediately understood what was going on.
In order to avoid paying the claim based on a “material misrepresentation,” the insurance company would have to be able to prove that Jorge intended to lie in his life insurance application. That evidence simply didn’t exist. The truth was, this was a guy who just didn’t like going to doctors and therefore ignored symptoms of disease he may have been experiencing. An additional truth, however, was that the insurance company could not prove Jorge actually had leukemia at the time of his application.
Once the attorney made these points to the insurer in a formal letter, the company dropped its investigation and paid the claim within a matter of days. Absent evidence of an intentional lie or concealment, the insurer simply wasn’t going to be able to avoid its obligation to pay.
Jorge’s case is not unusual. If you are experiencing a delay in payment on a life insurance claim because the insurance company alleges it is investigating a mistruth in the application, give our firm a call. We handle these types of cases every day and would be happy to help you get the payout that was intended for you.