Many people are vaguely familiar with the concept of life insurance. You pay a relatively low monthly premium and, in exchange, your beneficiaries receive a large payout upon your death. For many families, life insurance is their most important financial planning tool.
Unfortunately, however, many of the consumers who purchase life insurance policies never end up reading the fine print of those policies. If they did, they would realize that the life insurance company gives itself all sorts of excuses for not paying out a claim to your loved ones when you die.
One of the most surprising and oft-used excuses that life insurers invoke is known as the alcohol exclusion. While there are many different versions of the policy language, basically this exclusion relieves the insurance company from having to pay your beneficiaries in the event you pass away with a certain amount of alcohol in your system. What surprises most people is that your death doesn’t even have to be related to alcohol for this exclusion to apply.
The insurance company’s built-in incentive to deny claims
Before we get into the specifics of the alcohol exclusion, let’s talk for a minute about how life insurance companies make money. In essence, the relationship between the insurance company and the policyholder is simple. The policyholder pays monthly or annual premiums in exchange for a life insurance policy. Then, when the insured dies, his designated beneficiary is supposed to receive the agreed-upon death payout.
What many people don’t realize, however, is that life insurance companies are very much for-profit enterprises. Sadly, they don’t make great profits if they indiscriminately pay out claims made by policy beneficiaries. Rather, they make the highest profits if they can collect premiums for years (or even decades) from faithful policyholders and then find a reason to deny a claim when a policyholder dies.
Given the prevalence of alcohol use in our society, the alcohol exclusion is a great way for insurance companies to attempt to avoid payouts. Consider this representative case:
A death marginally related to alcohol
The case involved a 60 year old man named Jeff. Jeff had received his life insurance policy from his employer when he was just 40 years old. Given that he stayed with that employer his whole adult life, he ended up paying premiums on that policy for over 20 years. Jeff’s wife, Kathryn, was his sole beneficiary under the policy.
Neither Jeff nor Kathryn ever read Jeff’s life insurance policy in great detail. It’s hard to tell in hindsight whether an exhaustive understanding of the policy terms would have altered their lifestyle at all. In particular, the couple may have paid attention to the policy’s alcohol exclusion. It relieved the insurance company from making any death payout at all in the event Jeff died with at least the state’s legal limit of alcohol in his blood. The relevant statute in Jeff’s home state mandated that anything over a .08% blood alcohol level (BAC) was above the legal limit.
Jeff and Kathryn weren’t alcoholics, by any means. That said, they did love to party. They frequently hosted dinner parties in their house where all guests were served ample amounts of wine, beer, and spirits.
An unexpected death
On the night Jeff died, he and Kathryn were having one of their famous dinner parties. There were about 20 guests at their home and everyone was enjoying beer from a keg the couple had purchased. Around 10pm, some of the guests threw a frisbee onto the couple’s roof. Jeff volunteered to retrieve it.
Sadly, the frisbee was at the edge of the three-story roof and when Jeff when to reach for it, he fell. His neck snapped upon hitting the ground and he died instantly. Guests called 911 and the paramedics arrived with 15 minutes but Jeff was already gone.
Because Jeff’s passing was so unexpected, the Sheriff’s department ordered an autopsy to make sure he hadn’t been drugged or poisoned before he died. The only thing the autopsy revealed was that Jeff’s BAC was .07% at the time he died.
The claim denial
Kathryn made a claim for benefits against Jeff’s policy and was shocked to receive a claim denial letter in the mail. The stated reasoning for the denial was that, according to the insurer, if Jeff’s BAC was at .07% by the time the autopsy was performed, it must have been higher than the legal limit when he died. Accordingly, the life insurer was invoking the alcohol exclusion and denying Kathryn’s claim.
To Kathryn, a nurse, this explanation made no sense. Jeff died instantly and his body would have stopped metabolizing alcohol upon death. In other words, there was no way Jeff’s BAC was above the legal limit when he died. Although Kathryn was confident in her analysis, she knew she needed backup.
She contacted a lawyer specializing in the wrongful denial of life insurance claims. Having seen many claim denials based on the alcohol exclusion previously, he knew that the insurance company’s science was probably just a ruse. Nonetheless, he contacted one of the expert witnesses he knew well to evaluate the case.
The expert witness verified what Kathryn already knew. Jeff’s body stopped metabolizing alcohol at or around the time he died. There was simply no way his lifeless body could rid itself of additional alcohol at the rate the insurer was claiming.
After an intense mediation that included testimony from dueling expert witnesses, the insurance company finally caved. It knew that it’s bogus science would not hold up in court. Consequently, it agreed to pay Kathryn the death benefit Jeff intended for her.
Life insurance companies make alcohol exclusion denials in hopes that the beneficiaries won’t understand (or question) the underlying science. We’re here to tell you that they’re often wrong.If you have recently received a life insurance claim denial based on the alcohol exclusion, please contact us. We successfully contest these denials all the time. Call today. We’re here to help.