Life insurance policies seem like a straightforward contract between an insurer and a policyholder to provide a later financial benefit to the insured’s family upon death. These funds are often a desperately needed replacement of income for the beneficiaries to help them continue in life without their loved one to provide for them any longer. Unfortunately, life insurance claim denials are commonplace when families try to get deserved benefits, and many times these refusals include a posthumous cancellation of the policy itself. Whether you have a life insurance lapse or a life insurance claim denial, we can help.
Why Life Insurance Policy Cancellations Happen
During the first two years after life insurance coverage begins, the insurer has the right to review any made claims and scrutinize the original policy and application. This timeframe is called the contestability period and gives the carrier a chance to find ways to reduce the payout or nullify the insured’s policy altogether. Any minor mistake or statements that may be easily misconstrued in favor of denial or cancellation of coverage will likely occur during this two-year window of opportunity.
Canceling a life insurance policy after the fact of purchase may seem odd, but this is a typical industry standard that allows carriers an opportunity to get out of their contractual obligations. Some of the reasons that these corporations may cite to justify their decision could include:
Misrepresentation of information on the initial application.
The cause of death isn't covered.
Policy premiums were not up-to-date.
Failure to reveal important personal details like participation in dangerous sports or hobbies.
Denials on these grounds are not set in stone, though. There have been numerous cases where a valid life insurance claim received reinstatement by a court because the insurer failed to follow its own contractual obligations. For example, carriers who fail to verify the validity of a life insurance application and policy within the contestability period of its effectiveness cannot then deny a claim afterward because of material misrepresentation, nor can they cancel it.
Valid Reasons for Life Insurance Policy Cancellations
Despite their ability to misconstrue a small application error in their favor, there are legitimate reasons for a policy to be canceled once a death benefits claim has been filed. This is why insureds and their families should be vigilant about their coverage and keeping their policy information up-to-date.
Legitimate reasons for cancellation of a decedent’s policy after they have died, include:
Premiums were not current. This is a situation that may come to the surprise of many loved ones when filing a death benefits claim. Discovering loss of benefits because of a missed premium is a devastating mistake that can leave family members in a difficult financial position after the insured passes. Making timely payments is essential in preventing an unexpected denial of coverage or voiding of the life insurance policy.
Intentionally commit fraud on the life insurance application. Purposely giving false information about health, age, habits, or even career, is fraudulent and will lead to policy cancellation if discovered within the contestability period. Many times, terminally ill individuals are tempted to take out a policy in hopes they will live out the contestability period or that their actual cause of death won’t be discovered. This tactic rarely works, and the carrier has every right to deny claims for these types of actions.
Cause of death not covered in the policy. For many companies, there is a long list of coverage exclusions tucked neatly in between all of the policy paperwork that the insured may not be aware of. There may be a need to retain a life insurance attorney in these cases who has the knowledge and expertise to demonstrate a cause of death doesn’t qualify under the exclusions.
Avoid Life Insurance Policy Cancellation Risks with These Tips
While truthfulness and following policy guidelines ought to be enough to easily claim and receive owed death benefits, there are additional ways to further safeguard a demand for payout.
Understand what can and cannot be a cause to cancel your coverage.
Whether the life insurance company likes it or not, they can’t cancel a policy because:
The policyholder relocates
Age or sickness sets in
They started an unhealthy habit after purchasing a policy
The insured purchases additional coverage from other carriers
Know what to do if you miss a premium payment.
Once you miss a premium payment deadline, most life insurance carriers will allow a 30 day grace period to catch up. A few ways to avoid being in this predicament are:
Set up multiple points of contact so all activity, including late payments, do not go untended
Automatic payment features are popular with carriers today and will help you avoid missing payments
Have a family member or close friend available to make a payment for you if you cannot afford the premium that month
Never accept a life insurance policy cancellation at face value.
While a cancellation decision may be devastating, families should not immediately accept these findings and assume the insurer worked in good faith to do everything possible to approve a death benefits claim. Insurance companies are a business, and at the end of the day, the only interest they serve is their own. Many cancellations are arguable and should not be treated as the end-all decision the carriers want you to believe they are.
Get the Life Insurance Benefits You Deserve
If you or loved one had a life insurance policy that is now being canceled after claiming benefits, do not give up hope on recovering the payout you deserve. As you have read, insurance companies will use every excuse possible to reduce your claim or outright cancel the coverage you have counted on to take care of your family in the case of your loved one passing away unexpectedly.
Contact our firm today to speak with an experienced attorney familiar with the complicated and often frustrating nature of death benefit claims, and find out more about getting the compensation you need.