For many people, life insurance is a relatively low-cost way to put some sort of estate plan in place. In fact, recent news reports revealed that over half of Americans have less than $2,000 in savings. Thus, for most people, the days of leaving a will to bequeath priceless assets are over. Most Americans simply don’t have that kind of money anymore.
With a life insurance policy, however, a policyholder can pay relatively low annual or monthly premiums in exchange for a sizeable payout to beneficiaries when that policyholder dies. For many families, it is the only kind of estate planning they can afford.
Nonetheless, life insurance is one of those things many Americans obtain, and then just as quickly forget. In many cases, monthly premiums are paid by a person’s employer and the policyholder never has to give their life insurance a second thought. That’s all fine and good, except policyholders would be wise to never keep their beneficiary designation far from there mind.
If you’re on our website, you probably know what a life insurance policy beneficiary is. Just to be clear though, let us take a moment to explain the concept. Any time a person gets a life insurance policy, they are asked to name a “beneficiary.” The beneficiary has no responsibility for the policy. It’s not up to them to make premium payments or provide any required notifications to the insurance company.
The only thing a beneficiary has to do is make a claim when the policyholder dies and, if all is in order, collect the death payout their loved one intended for them. If only things were that easy.
This article explores the facts of one recent case where the life insurer used its policyholder’s failure to change his beneficiary as the reason for not paying the only person who was qualified to receive the death payout. While the insurance company was ultimately forced to pay up, it resulted in a great deal of hassle and anguish for the person entitled to the money.
It’s easy to forget a life insurance policy
Todd was the kind of person who was often described as “steady.” He grew up in a small town and returned there after college to pursue a management position with the local paper mill.
When Todd first took his management job, he was given a great benefits package. Among other things, it included a life insurance policy worth $500,000. Todd was only 25 years old when he started the job. He wasn’t yet married and wasn’t seriously dating anyone. Consequently, he named his parents as joint beneficiaries under the policy.
It didn’t surprise anyone that Todd remained working for the paper mill up until the time of his death at age 54. Through all those years, his employer had faithfully paid the premiums on Todd’s life insurance policy. In fact, the policy was so far removed from his mind that Todd never thought to change his beneficiary designation when two major life events occurred: marriage to his wife Megan when he was 35 years old, and the death of both of his parents when he was 43. Truthfully, his life insurance policy was something he hadn’t thought about at all since he started working there.
Death without a beneficiary
As noted, Todd passed away when he was just 54 years old. His death was an accident and everyone who knew him was devastated. Many people, including Todd’s coworkers, were terribly worried about Megan. Indeed, one of Todd’s colleagues was kind enough to put together a packet of information that he thought Megan might need in order to get Todd’s affairs in order. It included a copy of Todd’s life insurance policy.
Megan was grateful for the paperwork but didn’t have the will to read through it in detail. In fact, she just thumbed through the life insurance policy to the section entitled “How to file a claim.” She didn’t even notice that Todd’s parents were the beneficiaries.
Within weeks, Megan received a claim denial letter in the mail. The justification for the denial was that Megan was not the stated beneficiary under the policy – Todd’s parents were. Frustrated with the response, Megan fired off a curt email to the insurance adjuster who had written the letter. “Todd’s parents died years ago,” she wrote. “I’m his wife.”
After several weeks, the adjuster had not replied to Megan’s email. Figuring she was dead in the water with respect to her claim, Megan decided to give up. When she communicated her defeat to her good friend Mary, however, Mary insisted that Megan contact an attorney specializing in the wrongful denial of life insurance claims. Mary said she didn’t know who the money should go to under the circumstances, but she had a gut feeling the insurance company couldn’t just keep it.
It’s a good thing Mary communicated her instincts. When Megan contacted the specialized attorney, he was immediately incensed. There was no doubt that the law in Megan’s home state spoke directly to the issue of what a life insurer was supposed to do when someone died without a valid beneficiary in place. Specifically, the law directed the insurance company to make the death payout to the policyholder’s next of kin. In this case, Megan was indisputably that person.
The attorney placed one phone call to the adjuster who had ignored Megan’s email. He threatened to take the company to court and, in addition to seeking the death payout, to seek punitive damages for a bad faith claim denial. By that evening, the insurance company had agreed to pay Megan’s claim in full.If you’re facing a life insurance claim denial that doesn’t feel right to you, don’t give up on your gut instincts. Call our firm for a free consultation regarding the facts of your case. If we think you have a valid claim, we’ll take on the insurance company at no cost to you unless and until you recover money from them. Call today. We’re here to help.