Life Insurance

Every year, tens of thousands of life insurance claims are denied by life insurers who withhold hundreds of millions of dollars from beneficiaries. While there are some legitimate reasons for denying life insurance claims (such as if the person whose life is insured is still alive), these are very rare. More often, insurers will deny these claims to try and avoid paying out the money they owe, even when the claim is entirely legitimate. To do this, they employ a variety of tactics – three of the most common are 1) abusing the contestable period, 2) arguing certain ‘exclusion clauses’ in the policy prevent the death from being covered or 3) claim the policy lapsed when it was still fully in force.

The contestable period is a period of time after the life insurance policy is issued (generally 2 years unless the policy or state law provides otherwise) during which the life insurer can look for and claim the person whose life it insured made any one of a vast number of possible errors / irregularities to deny the claim. The contestable period is critically important to life insurers because, once it ends, they almost always have to pay up. The reasoning behind this: in the United States, life insurers are required to conduct due diligence and investigate before issuing a policy, or shortly after issue. They are not supposed to try to weasel their way out of paying by coming up with excuses after the policyholder dies, when he/she is not around to respond to any issues.

To get around the 2 year contestable period some life insurers argue that the contestable period starts over again or resets if the policyholder does such things as arrange for minor changes to a policy or converts a term life policy to a cash value life policy. It is important to understand that, in the vast majority of cases, life insurers are not allowed to start the contestable period again and there are legal protections that prevent them from resetting the contestable period.

Claiming Minor Errors Void a Poilcy. Another way life insurers sometimes abuse the contestable period and deny death benefit claims is by turning it into a ‘catch-all.’ This ‘catch-all’ approach relies on taking advantage of every single minor error and/or mistake the policyholder or agent might have made in the application process for the policy. Insurers will try to justify the denial of a claim by citing any and all errors – no matter how small or insignificant the error might be, such as the insured weighed 173 pounds rather than the 170 he (or the agent) put down on the application. However, these denials are only valid if the error is serious enough to constitute what the law regards as a ‘material misrepresentation.’

A misrepresentation is considered “material” when it is significant enough that, had the insurer been aware of the true facts it would have made a different decision in terms of issuing the policy and either would not have issued the policy at all, or done so only at a higher premium rate.  For example, if a policyholder lied about / did not disclose that she had diabetes during the application process, that likely would be a material misrepresentation. On the other hand, if a policyholder did not disclose that she had seen a dermatologist 4 years earlier regarding a non-threatening rash, or understated her weight by several pounds, or failed to state he took a multi-vitamin, these would almost certainly NOT constitute material misrepresentations. All too often, we see life insurers reject valid life insurance claims by trying to claim minor errors are sufficient to enable it to void a policy, and sending back a check for the initial premium paid, hoping the family will cash it. This practice is both unethical and improper, yet insurance companies too often get away with it because the beneficiary does not know the law or is too emotionally drained to deal with it.

Exclusion Clauses. A second approach some life insurers take to denying life insurance or accidental death claims is focusing on ‘exclusion’ clauses – which is equally problematic. Exclusions are clauses inserted into insurance contracts that enable insurers to deny coverage under certain conditions. Some of the most common exclusion clauses for life insurance or accidental death policies are for deaths relating to acts of war, private aircraft crashes, alcohol and or drug use, illegal activities, suicide, and dangerous activities. Insurers recognize that using vague language to describe these exclusions can often be to their benefit. They tend to weaponize them as a tactic so when they are on the hook for a payment, they can (and sometimes will) interpret any vague language in bizarre or specific self-serving ways to justify denying a claim. For instance, while many people consider snorkeling and scuba diving relatively harmless, life insurance companies have argued these constitute dangerous activities and thus are not covered because of the dangerous activity exclusion clause.

Wrongly Claiming Policies Have Lapsed.  Most life insurance policies require the policy owner to make ongoing premium payments.  If the policyowner fails to make timely payment of the premium, the policy can lapse, eliminating the obligation of the insurance company to pay the death benefit after the date it lapses. To enforce a lapse (and get out of paying the death benefit) the life insurer generally must be able to prove it mailed a notice that premium is due to the policyowner’s correct address of record on a timely basis, there must not have been sufficient cash value in the policy to cover the premium payment, and if the cash value is insufficient and the premium was not be received on time, it then must send a timely lapse notice stating that the policy has lapsed or will lapse unless payment is received by a set date. Many policies also contain a “waiver of premium” benefit excusing premium payments in the event of the insured person contracts certain illnesses and/or is disabled. Too often, life insurers fail to take these factors into consideration when denying claims for death benefits.

All of these tactics are designed to leave policyholders and beneficiaries feeling hopeless. Life insurance companies take advantage of the fact that many of the beneficiaries they are dealing with are emotionally drained or in a depressed state of mind and do not have the knowledge, time or energy to fight back.

At Advocate Law Group, our team of lawyers has over a half century of experience taking the fight to life insurance companies and holding them accountable. With one of our partners having served as President and CEO of a unit of America’s largest life insurer, and another having litigated on behalf of policyholders and beneficiaries for decades, we know the insurance industry from the inside and from out. If you have been denied a life insurance or accidental death claim, contact us today for a free consultation.

Annuity Benefits

Annuities are contracts sold by insurers in which individuals typically pay the insurer a certain amount of money (either up front or over a number of years) until a later point in time at which the insurer is supposed to begin paying the individual (or his or her named beneficiaries) a series of payments that can last a period of years or for the beneficiary’s life.

There are many different types of annuities including income annuities, fixed annuities, variable annuities (whose return depends on the stock market), and more. Although each annuity is designed to accommodate different financial needs and situations, the general appeal of annuities is their ability to provide a steady, consistent stream of income to help supplement people’s assets through retirement. Annuities can be successful investments, but they are certainly not right for everyone. Some drawbacks of annuities are their complexity, as many annuities contain elaborate terms, and impose restrictions that are hard for the average person to understand. The length of time they take to pay out (although this differs widely from annuity to annuity). Some annuities do not start paying out anything until 10 years from the date of purchase.

Recently, we have been seeing more and more instances of insurers and insurance agents unjustly abusing annuities by selling them to purchasers for whom the annuity is not at all appropriate. What these insurance companies and agents do is market annuities to seniors as risk-free investments that will provide an impressive rate of return to help them get through retirement. However, the annuities they sell are structured such that they do not start paying out until 10, or in many cases, even 15-20 years after the purchase. Furthermore, these annuities carry incredibly steep fees for withdrawing any money early – even in the case of medical emergencies (which, for seniors, tend to be pretty common). As a result, the seniors who purchase these plans find themselves locked into long contracts that they will barely (or never) receive payments from, and often struggle to pay for medical emergencies by dipping into the annuity and incurring excessive “early redemption” fees.

Insurers and agents know annuities are unsuitable for many seniors, but they continue to sell and market these contracts to them regardless, sometimes by touting an incredibly high interest rate, without disclosing the high rate is merely a teaser and drops way down after the first year.

At Advocate Law Group, we are experienced in taking on insurance companies and holding them responsible for these unjust and inappropriate annuity sales. We can help seniors who have been tricked into purchasing inappropriate annuity contracts win big. If you purchased an annuity at 60 years of age of (or older), and you think you were misled or the life insurer that issued the contract is not living up to its end of the bargain, contact us for a free consultation.

Retained Asset Accounts Frauds

Instead of sending life insurance and pension beneficiaries a conventional check for death benefits and other proceeds, many life insurers now pay beneficiaries by issuing what are known as interest bearing Retained Asset Accounts.

With a Retained Asset Account the insurance company holds the funds at interest and sends the beneficiary what looks like and functions like a book of checks (technically they are known as “drafts”). That enables the beneficiary to pay pressing bills quickly yet take time to decide what to do with the bulk of the life insurance proceeds until she has regained her composure. 

The beneficiary could simply write out one draft out for the full amount and close the account, or she can allow the money to remain on deposit with the life insurer (often earning a higher rate of interest than many banks or money market mutual funds pay) and write smaller drafts to pay bills just as if the money was held in the bank.

As an Advocate Law Group partner invented the concept and created the first Retained Asset Account in 1983, since then some life insurers have abused the concept. If a life insurer has treated a beneficiary improperly, such as by claiming the company made a mistake and can simply withdraw funds without the policyholder’s permission, or fails to give the beneficiary the same rights a bank would provide in the event of a claimed forgery, contact Advocate Law Group as we may be able to help.