There’s so much wrong with the headline of this article. First of all, if you’ve gone to the trouble to obtain life insurance, why would you want to have a claim denied? Secondly, if you’ve the one who has obtained the policy, it’s not you who will have a claim denied – it’s your beneficiaries who, upon your death, will be denied the financial security you intended for them.
This headline, of course, is just an attention grabber. As attorneys who specialize in the wrongful denial of life insurance claims, we sometimes like to remind people that there are times when a life insurance company has a valid reason for denying a claim. This article is a sort of cautionary tale that is meant to help you and your loved ones avoid such a fate.
The reality is, life insurance companies wrongfully deny valid claims all the time. Our law firm exists for the sole purpose of contesting those wrongful denials and getting our clients the money they are owed. In fact, we have a great record of success in that regard. Nonetheless, there are times when the facts, law, and circumstances make it very difficult for us to contest a denial. Here are the things policyholders can do to make sure their life insurance policies are effective and that their beneficiaries will get paid when they die.
Don’t lie in your life insurance policy application
Here’s a subtle reality about the human psyche – every now and again, we’re all tempted to tell a little white lie that will make us look better in the eyes of others. People lie about their age, their weight, the status of their relationship. Most of the time, it’s harmless.
That is not the case when you’re applying for a life insurance policy. You see, life insurance policies are basically contracts between you and the insurer. As such, they are governed by standard contract law. One of the main principles of contract law is that the parties to a contract cannot lie to one another during negotiations. If one party does lie, and that lie is important enough that the other party would have avoided the contract if he’d known the truth, then that second party can avoid his contractual obligations all together once the lie is discovered.
When it comes to life insurance policies, your policy application is like a contract negotiation. The insurance company asks questions about your health, lifestyle, and hobbies. You’re expected to provide truthful answers. The insurance company, upon reviewing those answers, decides whether to issue you a policy at all and, if so, how much they should charge you in premiums. If you die while the policy is in place and the insurance company discovers you lied in your application, they can refuse to pay the claim made by your beneficiaries.
One situation we see from time to time is the person who claims in their life insurance application that they have no significant medical conditions. Yet in truth, for example, they’ve just completed treatment for early-stage cancer. If that person dies within the first couple of years after the policy is issued, you better believe the life insurance company will undertake an investigation into their medical history. In doing so, they’ll find out about that cancer, claim that they never would have issued the policy had they known the truth, and refuse to pay the policy beneficiaries. The law supports the insurer’s right to do that.
So, just don’t lie in that application. You may end up paying a higher premium, but at least your beneficiaries will receive the financial security you intended for them after you pass away.
Pay your premiums
This is another instance where basic contract law comes into play. A contract is nothing more of a set of promises between two parties. In the life insurance context, the policyholder promises to make premium payments. In exchange for those payments, the insurer agrees to pay a certain amount to the policyholder’s beneficiary when the policyholder dies.
If you fail to pay your premiums (i.e., fail to hold up your end of the bargain), the insurance company won’t have to pay your beneficiaries when you die. Thus, even when money is tight, you need to make sure you prioritize your premium payments if you want to protect your loved ones financially.
Of course, there are some exceptions to this rule. Most notably, the laws of most states require that the life insurance company give you a thirty day grace period before your policy is cancelled. That means that if you die while you’re a couple weeks late on making that payment, the insurance company can’t refuse your beneficiary’s claim. That said, just because a life insurer isn’t supposed to do something doesn’t mean they won’t try to get away with it anyway. Save your beneficiaries the hassle of fighting that battle. Just pay your premiums on time.
Don’t be reckless
Finally, many life insurance policies contain an exclusion that basically exonerates the insurance company from having to pay a claim against your policy if you die while doing something ridiculously dangerous. They call this the “inherently dangerous activity” exclusion.
For example, if you die while racing your motorcycle down a country road at 100 miles per hour, chances are the insurance company will invoke this exclusion. In essence, the company is arguing that your behavior so increased your likelihood of death that they should be absolved from their obligation to pay your beneficiary.
Note that some policies actually define certain activities that are deemed “inherently dangerous.” They include things like SCUBA diving, skydiving, or rock climbing. If you do one of those activities regularly, you should notify your insurer. You may end up paying an additional premium, but at least your beneficiaries will be covered.Of course, if you’re a beneficiary whose life insurance claim has been denied, we want to hear from you. Every case is different and even if the insurer cited one of the above reasons for denying your claim, you should still get that claim denial evaluated by an expert. Call us today. We’re here to help.