Life insurance companies like American General Life Insurance Co. often market their products as a safeguard for the hopes and dreams of American families. Consumers are promised financial security, but in reality, many beneficiaries face the frustrating situation of claim denials after their loved one’s death. These denials often come as a surprise, especially when premiums are paid, and there is no fraud involved.
One recent case highlights the challenges beneficiaries may face. A widow tried to collect death benefits after her husband’s passing, only to find that the insurer had canceled his life insurance policy. Despite the fact that the man’s premiums were up to date and no fraud was suspected, the insurance company refused to pay her the $250,000 death benefit. The insurer claimed that her husband’s application was incomplete and that certain conditions were not disclosed—conditions that his doctors confirmed he did not have. After a prolonged legal battle, the widow eventually reached an undisclosed settlement with the insurance company.
Why Do Life Insurance Companies Deny Claims?
Insurance companies can dispute claims for a variety of reasons, with material misrepresentation being the most common. Material misrepresentation occurs when the policyholder fails to disclose important information that the insurer deems crucial in assessing risk. This allows insurers to rescind coverage altogether.
While insurers can dispute claims based on fraud, about two-thirds of disputes stem from material misrepresentation. In many cases, insurers seize on small flaws or incomplete information that they could have identified before issuing coverage. Some insurers rush applications through to collect premium income without thoroughly screening the risks. Once a claim is made, they may use rescission to avoid paying out, ultimately increasing profits at the expense of beneficiaries.
Many states have enacted laws to curb such practices, banning unlimited rescissions after the first two years of the policy. However, in some states, insurers are still permitted to rescind policies during this two-year period.
Real-Life Example: Bankers Life and Casualty Co.
In another example, Bankers Life and Casualty Co. faced serious penalties after an investigation revealed fraudulent practices related to their claims handling. The company was fined over $3 million, with an additional $800,000 paid to regulators for the costs of the re-examination. This came after regulators found that Bankers Life had failed to investigate claims in a timely manner and had not properly documented or maintained claim files.
Despite these issues, Bankers Life did not revise its procedures to ensure proper claims handling until well after the investigation. In fact, in 2010, the company still had not updated its underwriting practices or ensured that claims were processed promptly. This noncompliance affected its life insurance, long-term care insurance, and annuity businesses.
What to Do If Your Life Insurance Claim Is Denied
If your life insurance claim has been delayed or denied, it's essential to act quickly. The process of recovering death benefits can become much more complicated if the claim is denied. In many cases, insurers rely on delay tactics or wrongful denials to discourage beneficiaries from pursuing their rightful claims.
Hiring an experienced life insurance attorney can make a significant difference in getting the benefits you’re entitled to. A lawyer can help you navigate the complexities of life insurance policies and ensure the insurer follows the law. Whether your claim is denied due to material misrepresentation, contested issues, or delays, a skilled attorney can advocate for your rights and fight to recover the death benefits you deserve.
Get Help Today
If your claim has been denied or delayed, don't settle for less than you're entitled to. Contact our life insurance attorneys for assistance. We specialize in fighting for beneficiaries who have been wrongfully denied their claims, and we will work tirelessly to help you recover the full benefits of the policy.