Given that we are a law firm specializing in the wrongful denial of life insurance claims, we get phone calls every day from intended beneficiaries who are puzzled by the technical language of a recently-received claim denial letter. We always try to assure these callers that their confusion is not unusual. In fact, in many instances, the claims adjuster will use intentionally confounding legal jargon in an effort to make a bogus claim denial sound legitimate to the lay person.
This is just one of the tricks life insurance companies use in their unyielding efforts to deny valid claims. They do this, of course, because they don’t get rich by paying out every claim that is submitted to them. Rather, their profits are highest if they can collect the maximum amount of premiums while paying out the minimum number of claims.
One of the ways they get away with this is by “testing the waters.” They’ll issue a highly confusing claim denial letter that is principally intended to test the beneficiary’s fortitude. If the person is strong-willed, they will contest the denial and likely receive the benefits that were intended for them. Most beneficiaries, however, are already overwhelmed with grief and don’t have the will to fight a sophisticated insurance company. This is especially true when the claim denial letter uses all sorts of technical language that makes it sound legitimate.
In addition to our regular practice, we like to keep our clients and potential clients educated on the various issues that arise in the life insurance claim denial context. In this article, we explain some of the most frequent phrases life insurers employ in issuing claim denials. While some may be familiar to you already, others may have left you scratching your head a bit. That’s ok. Sit back, relax, and hopefully learn something about this convoluted situation you’ve been thrust into.
Life Insurance Policy – Key Players
Policyholder: This is the person whose life is insured. Although there are some exceptions, generally the policyholder (and/or his employer) is responsible for paying all premiums on the policy. The policyholder is the one who fills out the initial application for insurance. He or she is also the person who names the beneficiary to the policy.
Life insurance company: This, of course, is the insurance company that issues a policy on the insured’s life. Key players within the company itself include: (a) lawyers (they draft policy language, craft reasons for claim denials, and defend lawsuits against the insured), (b) claims adjusters (the people who typically issue claim denial letters), and (c) appeals boards (an internal panel that hears and rules upon claim denial contests).
Beneficiary: The policy beneficiary is the person who will receive the death payout when the policyholder passes away. The beneficiary is chosen by the policyholder.
Alternate Beneficiary: An alternate beneficiary is someone chosen by the policyholder who will receive the death payout if the original beneficiary is already dead when the policyholder passes away.
Common Life Insurance Policy Exclusions
Suicide exclusion: This exclusion relieves the insurance company from making a death payout if the policyholder dies by way of suicide. In most policies, this exclusion only applies for two or three years after policy issuance.
Inherently dangerous activity exclusion: This exclusion alleviates the insurer from the obligation to make a death payout if the policyholder died while engaging in an “inherently dangerous activity.” Some policies specifically define these activities to include things like SCUBA diving, skydiving, or motorcycle racing. Other policies loosely define the concept to include any activity that greatly increases the insured’s chances of suffering an early death.
Drug exclusion: This exclusion typically states that the insurance company does not have to make a death payout if the policyholder died while ingesting any sort of illicit drug. There is often much controversy about which drugs should be included within the reach of this exclusion.
Alcohol exclusion: This exclusion can relieve the insurer from making a death payout of the insured dies as the result of alcohol consumption. This can include alcohol toxicity or an alcohol-related accident.
Other reasons for denying coverage
Material misrepresentations: A life insurance company can deny coverage if it believes the policyholder made “material misrepresentations” in his life insurance application. Legally, this means the policyholder told a lie so significant that, had the insurer known the truth, it never would have issued the policy in the first place (or it would have issued a policy for a much higher premium). The consummate example is the policy applicant who claims in his insurance application he never smoked cigarettes and is then issued a policy. After the policyholder dies of lung cancer, the insurer discovers he was a two-pack a day smoker. That lie would be considered a “material misrepresentation” that would relieve the insurance company from making a death payout.
Lapsed policy: The insurance company can also deny coverage if the policyholder failed to make premium payments. Note, however, that in most instances, the insurer must give the insured a 30-day grace period. The insurance company is also required to provide proper “Notice of Non-payment” in order for a cancellation on this basis to be effective.
Period of contestability: While this is not technically a reason for denying coverage, it is often the precursor to a claim denial. Most policies call for a one to three year period known as the “period of contestability.” If the policyholder dies during that timeframe, the life insurer may conduct an intensive, independent investigation into the insured’s life and death. If they discover any material misrepresentations or other circumstances that would trigger a policy exclusion, they may deny coverage on that basis.Of course, there are a million other terms that are pertinent to life insurance claim denials. These are simply the ones you’re most likely to see in the initial claim denial letter. If you need help interpreting or contesting that letter, call us today. We’re here to help.