Category: Life Insurance Claims

When can an insurance company cancel a life insurance policy?

When taking out a life insurance policy, the policyholder aims to provide an extra layer of financial security and peace of mind for his or her loved ones. However, since insurers are incentivized to minimize risk, they will frequently look for reasons to cancel customers’ policies. This can jeopardize the policyholder’s supposed financial security and force him or her to evaluate other alternatives. Misrepresentations during the contestability period, nonpayment of premiums, and termination of employment are three of the most common reasons for which insurance companies may decide to cancel your policy.

The Contestability Period

The contestability period is defined as the amount of time during which an insurance company can review and fact-check information on a life insurance application. It is two years from the effective date of the policy in most states, although some (e.g. Missouri) limit it to one year. The contestability period is usually used as a means for denying claims after the insured’s death, but it can also be used in order to investigate and cancel existing high-risk policies.

If the policyholder left out any information on his or her policy application, such as a previous illness, medical condition, or hospital visit, the insurer has the right to investigate statements on the application and cancel coverage if something was left off. Unless there is reason to believe the application was fraudulent, the insurer has little motivation to do this while the policyholder is still alive and likely to live past the two-year contestability period.

Termination of Coverage/Lapse

The most common situation in which an existing life insurance policy may be cancelled is through nonpayment of premiums, i.e. when you don’t make one or more of your monthly payments. Your coverage is unlikely to terminate if you send payment a few days late, as the vast majority of life insurance policies allow for a “grace period” of at least fifteen days. So long as the insurance company receives payment within the grace period, coverage will remain in place.

However, if the grace period expires, your coverage will lapse; in other words, your policy will be cancelled. In such a situation, you have to contact your life insurance company and meet specific conditions before reinstating your coverage. This often involves retroactively making up all missed premium payments.

Termination of Employment

Many people get their life insurance via so-called “group life insurance plans” through their employer. When you are no longer considered an active employee, your coverage will terminate along with your employment. This is often the case with workers who go on disability and are thus no longer considered “active.” Their coverage may terminate even though they are still technically employed.

In these situations, it may be prudent to request that your insurance provider convert your group policy to a privately owned, individual life insurance policy. This often requires paying high premiums and meeting certain provisions as determined by the company.

If your policy has been momentarily cancelled, you can always reinstate it or buy a new one. When the policyholder passes away before reinstating coverage, however, legal recourse may be the only option. If your loved one’s coverage was wrongfully terminated prior to his or her death, it’s best to contact an experienced life insurance lawyer to evaluate your case.

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What is a spendthrift provision?

What is a Spendthrift Clause in a Life Insurance Policy?

Let’s start with defining a Spendthrift Trust Provision

A “spendthrift trust” is a form of trust meant to protect the heir of an estate from creditors. A trust is created when an individual puts money aside to be managed, invested, and distributed by a trustee.

Often, an asset management company (AMC) serves as trustee for a spendthrift trust. Trusts vary in the amount of discretion that they afford to the trustee. Some trusts specify that the trustee can distribute funds “as needed,” while others specify restricted uses or amounts at specific time intervals. In contrast to a typical trust, in which the trustee receives some level of discretion over when to use/withdraw funds, spendthrift trusts typically restrict distribution of the trust to regular installments. For instance, if the trust value were $2,000,000, the trust might be paid out over the course of 10 years through annual, $200,000 installments.

Consequently, creditors and debt collection agencies cannot come after the full value of the trust. If the beneficiary only has the latest $200,000 payment in his or her account, the creditor is unable to reach the other $1,800,000 of assets, as they still technically belong to the AMC/trust and are not at the discretion of the beneficiary/heir. Creditors can access the funds to the same extent that the beneficiary can.

DAPT States

Some states allow for the creation of “Domestic Asset Protection Trusts,” which are self-serving spendthrift trusts that protect the creator’s assets from creditors. These function in much the same manner as other spendthrift trusts, except that payments are made back to the original creator instead of a beneficiary. As of 2017, DAPT trusts are only permissible in sixteen states as the concept is still relatively new.

It is important to note that since life insurance payments go to a beneficiary after the policyholder’s death, the policyholder cannot access his or her own death benefit. Consequently, life insurance is not used as a form of DAPT.

Spendthrift Clause: What is a Spendthrift Provision in Life Insurance?

What is a spendthrift clause in life insurance? Life insurance policies are treated in much the same manner as trust funds; both function as assets accumulated over the course of the creator’s (or policyholder’s) life. Likewise, a “spendthrift provision” or spendthrift clause is a clause in a life insurance policy which safeguards the beneficiary’s death benefit from creditors.

In life insurance policies with spendthrift provisions, the death benefit assets technically belong to the insurance company, which acts as an AMC. Since the insurer (not the beneficiary) owns the total benefit, its cumulative value is not subject to the beneficiary’s outstanding debts. As with a spendthrift trust, spendthrift life insurance policies pay out benefits over a given period (e.g. five years) on a regular basis, as opposed to singular lump sum.

Life insurance companies profit from spendthrift provisions because they can access money for more time. If a life insurance company is wrongfully limiting or restricting your benefits, be sure to contact an experienced life insurance lawyer to evaluate your case.

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How long should it take for an insurance company to pay out on a life insurance claim?

If all goes well and all documentation is in order, insurance companies should pay out on claims promptly. In most cases, the time from which the death certificate and necessary documentation is filed to payment of the death benefit will take less than a month, possibly even under two weeks. However, if your claim is taking an exceptionally long time to be processed, it could be an early sign that you won’t get paid.

Delay of claims during the contestability period

The more claims a life insurance company can deny, the more profit they will make. Consequently, insurers may try to delay your claim, allowing them to investigate further into your policy and find a reason to deny your benefits. While it is possible that the company is simply backlogged or that a document was filed incorrectly, claims are frequently delayed as a prerequisite for denial.

This is especially likely during the contestability period, a specific period of time (two years in most states) during which an insurer can investigate and “contest” statements made on the original life insurance policy application. For instance, if the policyholder was diagnosed with heart disease yet answered “no” to a question on their life insurance application asking whether he or she had any cardiovascular conditions, the insurance company can revoke the policy and avoid paying the death benefit. In order to find these discrepancies, the company will conduct a full investigation of the deceased’s medical records and history, which will often take a significant amount of time. Thus, delay of claims during the contestability period means that the insurance company is looking for a reason to avoid paying you the benefit.

State-by-state regulations

Some states have so-called “prompt payment” laws with deadlines and conditions under which claims must be paid. For instance, Michigan’s insurance code dictates that if benefits are not paid within sixty days after the claimant provides proof of loss to the insurer, the insurer will have to pay extra interest. Many other states have similar policies to incentivize insurance companies to pay out quickly, but they are not always well-defined. Some state that payment must be made “promptly” and in a “timely” manner but offer no strict timeline or consequences for delayed payment.

Regardless, if your life insurance claim has been delayed, it helps to get the assistance of an experienced attorney to help move things along and be prepared in the event that your claim gets denied.

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What happens to the benefits for a life insurance policy when the beneficiary is deceased?

Is the life insurance beneficiary deceased? What happens if the life insurance beneficiary dies first?

A busy national life insurance attorney will explain what happens if the beneficiary of a life insurance policy is deceased, dies soon after or at the same time as the insured, dies while the claim is under review, or if the beneficiary designation is otherwise invalid.

If a close friend or loved one has died and the named beneficiary of their insurance policy has also died, give us a call. You may be entitled to some or all of the death benefit if you are a secondary beneficiary, a contingent beneficiary, or an heir to the estate of the insured.

Life Insurance Beneficiary Deceased or Out-of-Date Beneficiary Designation

What happens when there is no life insurance beneficiary? If the primary beneficiary of death benefits is deceased or the beneficiary designation is otherwise invalid, there are two possible outcomes: the death benefits will be paid to another beneficiary or other beneficiaries, or the death benefits will be paid to the insured’s estate.

Did the Insured Name Multiple Life Insurance Beneficiaries?

Generally, if there are multiple primary beneficiaries and one dies, the death benefit passes to the remaining living beneficiaries. If the primary beneficiary of a policy is deceased, invalid, or cannot be found, the death benefit will go to a named secondary beneficiary or contingent beneficiary. If there are multiple “co-beneficiaries” on a policy and one of them has passed away, the death benefit will be split among the remaining co-beneficiaries.

The Death Benefits Will Be Paid to the Insured’s Estate if there are No Beneficiaries Available

What if both the primary and secondary beneficiary on a policy are deceased or both designations are invalid? In these cases, the life insurance proceeds are paid to the insured’s estate, which consists of all of their assets and debts upon death.

This may seem fine at first glance because the estate is usually transferred to the deceased’s next of kin by default. However, paying the death benefit to the insured’s estate can be disadvantageous for two reasons.

1. The Death Benefits Will Be Used to Pay Debts of the Insured’s Estate

If the insured was in debt at the time of death, their estate would be used to pay off any outstanding debts. If their estate includes the death benefit, outstanding debts can eat up all or most of the proceeds.

Contrast this with a named beneficiary receiving the death benefit directly. The beneficiary receives the full amount regardless of the insured’s debts.

Many states exempt a specified amount of life insurance death benefits from being subject to debt or tax collection even after being transferred to the insured’s estate, but this depends on the laws in your state. Call us if you have questions about this.

2. The Death Benefits Will be Subject to Estate Tax

A beneficiary receives the death benefit without being subject to taxation. However, If the sole beneficiary to a life insurance policy dies before the insured and the death benefit is paid to the estate, it will be subject to estate taxes.

What Happens in Cases of Simultaneous Death?

“Simultaneous death’ is the term used to refer to instances when the beneficiary dies at the same time as the insured or within 24 hours of the insured’s death.

In cases of simultaneous death, state law will govern whether the death benefit is paid out to a second or contingent beneficiary, to the estate of the insured, or to the estate of the beneficiary.

What Happens When the Beneficiary Dies Soon After the Insured Dies?

Spouses often name each other as beneficiary to their life insurance policies, or one spouse is the beneficiary of the other spouse’s policy. This becomes problematic if a spouse suffers from  “broken-heart syndrome” and passes away a month to two after the other, or when a couple is in a fatal accident together and one dies a week or two after the other.

In either case, the policy pays out to the beneficiary’s estate, is used to pay debts of the estate, and the remainder is distributed to the heirs of the estate. Check with the law in your state, as each state treats this issue differently and there may be additional nuances.

What Happens if the Life Insurance Beneficiary Dies before Claim is Approved?

If a policy’s primary beneficiary is alive at the time of the insured’s death but dies before the claim is processed or paid, the death benefit will be transferred to the beneficiary’s estate rather than the insured’s.

This opens the door to the possibility of the death benefit being absorbed by the beneficiary’s outstanding debts or being subject to estate taxes. Unlike with the insured’s estate, the aforementioned state-by-state exemptions from debt and tax collection do not apply once the benefit is transferred to the beneficiary’s assets.

What Happens if Beneficiary Designation Invalid due to Automatic Revocation?

In some states, an ex-spouse’s beneficiary designation is “automatically revoked” upon divorce. If the beneficiary designation is invalid due to divorce and automatic revocation, then a secondary or contingent beneficiary will receive the death benefit, and if there are none, the benefit will be paid to the insured’s estate.

Keep Your Life Insurance Beneficiary Designation Current

The big takeaway is that it is imperative to keep beneficiary designations as up-to-date as possible. Don’t be left wondering what happens if your beneficiary dies before you or if your beneficiary is out-of-date or otherwise invalid.

You also need to name more than one beneficiary. Life insurance is usually advertised as a “safe” investment, free from taxes and unforeseen deductions. However, if your beneficiary is deceased or cannot be located, or your beneficiary designation is invalid, the death benefit may be treated the same as any other asset and consequently be subject to debt and tax collection.

Designating multiple primary beneficiaries, a secondary beneficiary, or a contingent beneficiary or beneficiaries provides an effective safeguard against the death benefits paying out your estate.

Contact Us if the Named Beneficiary Has Died or the Beneficiary Designation is Invalid

There is much litigation over who is entitled to the death benefit under the circumstances set forth in this article. If you recognized your circumstances in this article and you believe you might be entitled to some or all of the death benefit, or if your life insurance claim was denied, call us for help. We don’t get paid unless and until you do, and your initial case evaluation is free of charge.


What happens if someone dies shortly after getting life insurance?

In short, the beneficiaries’ claims are more likely to be denied.

A life insurance company is contractually obligated to pay the specified death benefit regardless of when the loved one dies, whether it is four months or forty years after the policy takes effect. While the purpose of a life insurance policy is to provide coverage in the event of a loved one’s unexpected death, if the insured dies within a year or two of obtaining or increasing their insurance policy, the company will look for reasons to avoid paying the claim. This is especially likely to happen if information on the initial application was inaccurate or if it looks like the insured may have committed suicide.

If your life insurance claim was denied, we may be able to help you. Call us for your free, no-obligation case evaluation.

Do life insurance companies check medical records after death?

Yes. The insurance company will look for undisclosed medical conditions and also investigate the facts the insured set forth in the application for life insurance. If they find any discrepancies, your claim for death benefits will be denied.

The Contestability Period

The contestability period is defined as the amount of time during which an insurance company can review and fact-check information on a life insurance application. If the insured dies during the contestability period, the company will do a full investigation of the individual’s medical records as well as all of the other information requested on the application.

If any medical information was left off the policy application, the insurance company will have grounds for denying a claim or reducing the death benefit. They are only obligated to pay out if all the information made on the policy application was completely accurate. If there were any misrepresentations or falsities, they will invalidate the policy and refund premiums instead of paying the full death benefit.

For this reason, generally, claims in which the insured passed away during the contestability period have a significantly higher chance of being denied than they would after the period expires. Although the length of the contestability period varies (e.g. Missouri is one year), it is two years in most states.

Although it may be frustrating to policy owners and beneficiaries, the contestability period makes sense from a legal perspective. Say you were diagnosed with a terminal illness and decide to take out a valuable life insurance policy so that your relatives can benefit upon your inevitable death a few months later; on the application, you fail to mention your diagnosis such that the insurance company has no idea of your actual condition.

Know that life insurance companies also use the contestability period to their advantage; if the application asked the applicant to state any diagnosis of an anxiety disorder in his or her lifetime and the insured failed to mention a childhood diagnosis of OCD, the beneficiary’s claim can still be denied even if the alleged misrepresentation has little to do with the insured’s cause of death.

The Suicide Clause in Life Insurance

It may seem morbid, but most life insurance policies contain a provision, or “suicide clause,” in which claims can be denied in the event of the policyholder’s suicide.

The suicide clause is meant to deter people from buying policies with the intention of committing suicide shortly afterwards, thereby leaving large sums of life insurance benefits for their family members. This clause generally applies during the aforementioned “contestability period,” so if the policyholder commits suicide more than two years after buying the policy, beneficiaries are still entitled to the death benefit.

It is important to note that AD&D policies never cover suicide, which by definition cannot be considered an “accident.”

If you or someone you know is struggling with thoughts of suicide, call the National Suicide Prevention Hotline at 1-800-273-8255 to access their national network of local crisis centers that provide free and confidential emotional support to people in suicidal crisis or emotional distress 24 hours a day, 7 days a week.

Was your life insurance claim denied because the insured died during the contestability period?

If a policyholder dies shortly after buying life insurance, the insurance company has more freedom to contest/deny the beneficiary’s claim. Consequently, it is all the more important to contact an experienced life insurance beneficiary lawyer if your claim has been unjustly delayed or denied. Call us if your claim has been denied because the insured died within the contestability period – we get our clients paid!


Was Your Life Insurance Claim Denied Due to Lapse?

If there was a lapse in coverage, your claim will be denied. But don’t take no for an answer!

Our life insurance attorneys have gotten many clients paid on lapsed policies. Lapse is one of the most common reasons a life insurance claim is denied, however, in many instances we can get the claim denial reversed if we show that the lapse was not the fault of the insured.

Contact us to speak with a life insurance claim lawyer about your claim and find out whether the life insurance company should pay your claim on the lapsed policy. We only take cases on a contingent basis, meaning we do not get paid unless you do, so you have nothing to lose.

How to Get Paid on a Lapsed Life Insurance Policy

Life insurance is a highly regulated industry. Life insurance companies must follow strict procedures when an insured’s premium is late or premiums have not been paid for some time, and the policy lapsed or was terminated. Sometimes they don’t.

The laws that control payment lapse or termination for non-payment of premiums are updated frequently, requiring life insurance companies to update their contracts and procedures. Often they fail to do so, or fail to do so in a timely fashion, and a policy will fall through the cracks.

Frequently, our life insurance lawyers have shown that the life insurance company failed to follow the law and improperly cancelled the life insurance policy. In the case of lapse of employer-provided group life insurance, our life insurance attorneys have shown that the administrator of the group life insurance plan failed to follow the law. In these cases, the beneficiary can be paid despite the lapse in coverage.

Our life insurance attorneys thoroughly investigate each case of lapse to determine whether the lapse was not the fault of the insured. Here are instances where we’ve gotten our clients paid on a lapsed insurance policy.

If the Policy Lapsed Because the Insured Did Not Receive Notice, the Beneficiary May Be Paid

If the insured never received notice of the lapse, or received inadequate notice under the law, you may get the death benefits paid under certain circumstances.

Case Study:  where the insured fell into a comatose state and the family never received notice that premiums were past due, only notice of lapse and termination, we were able to get the beneficiary paid.

If you are the beneficiary of a lapsed life insurance policy, you should obtain copies of any notices sent to the insured and contact our experienced life insurance lawyers to evaluate whether your claim can be paid despite the non-payment of premiums.

If the Insured Died During the Policy’s Grace Period, the Beneficiary May Be Paid

The policy documents will set forth the applicable grace period following non-payment of premiums. If the insured dies within this period, the policy is still in effect and the beneficiaries will be paid the death benefit.

In the case of death during the grace period, our life insurance lawyers can likely get your claim paid. We will need to know the date of death and the date of the insured’s last premium payment. We will also need any notices sent to the insured, if available.

If the Policy Lapsed Because the Insured’s Premium Payment was Lost or Delayed, the Beneficiary May Be Paid

If a premium payment was lost or delayed through no fault of the insured and the policy lapsed, the beneficiaries still may be paid.

This often happens when the insured is in the hospital or assisted living and no longer in control of their finances. In these cases, our life insurance attorneys will investigate whether the insured or the insured’s power of attorney received the required notices regarding non-payment.

If the Policy Lapsed Because the Life Insurance Company Failed to Properly Calculate or Apply Flexible or Vanishing Life Insurance Premium Payments, the Beneficiary May Be Paid

Some life insurance policies offer the option of varying premiums payments. While this may be convenient for the insured, it opens the door to administrative error on the part of the life insurance company. If the policy lapses due to this administrative error, the beneficiaries can get paid.

If the Policy Lapsed Because the Insured’s Employer Mismanaged the Group Life Insurance Plan, the Beneficiary May Be Paid

Unfortunately, this is common. Because insurance law is complex and many employers attempt to administer their group life insurance plan lawfully but fail, policies lapse and are terminated through no fault of the insured. In these cases, the policy will pay out.

If you are the beneficiary of an employer-provided group life insurance policy, contact our life insurance lawyers for your free case evaluation. We will investigate and determine whether the employer failed to provide an application for conversion to private life insurance, failed to provide an application for life insurance premium waiver for disability, or failed to send the required notices, whether the employer stopped paying the premiums unlawfully.

If the Policy has a Non-Forfeiture Clause, the Beneficiary May Be Paid Despite Lapse

Some insurance policies include a non-forfeiture clause, which means that if the insured stopped paying premiums, their beneficiary will still receive some of the benefit.

You can think of this as a lapsed policy refund. If coverage lapses, the insurance company will refund part of the premium payments and/or pay the policy’s cash value.

With some policies, coverage will not lapse in case of non-payment. Instead, the policy will remain in place but with a reduced death benefit calculated as a percentage of the premiums that were paid.

What is Lapse in Life Insurance?

When someone buys a life insurance policy, the life insurance company’s obligation to pay out to their beneficiaries is contingent upon whether the insured paid their premiums. A lapse in coverage will occur if the insured fails to pay their premiums. If the policy lapses, the life insurance company will not pay the insured’s beneficiaries.

Call Our Life Insurance Lawyers if Your Claim Was Denied Due to Lapse

If your life insurance claim was denied due to a missed payment, reach out to the life insurance lawyers at Boonswang Law. We will determine whether you can be paid!

Was Your Life Insurance Payout Denied After the Contestability Period?

Unfortunately, it’s a common occurrence to find yourself in a situation where life insurance is not paying out. While this most commonly happens during the contestability period, denial do occur after the contestability period as well.

If you have a life insurance payout that has been denied after the contestability period, you can talk to a life insurance lawyer at Boonswang Law free of charge. Call us today at 1-855-865-4335

Why Does The Contestability Period Exist in the First Place?

Life insurance is a contract between the insured and the insurance company. For a contract to be legally enforceable, both parties to the contract have to agree to the same things. For example, if an insurance company believes it is providing insurance for a non-smoker but is really insuring someone who smokes a pack a day, the two parties have not agreed to the same terms.

State law governs contracts and insurance policies. Most states believe that while people should not be able to lie and commit fraud to get insurance, insurance companies also have a responsibility to properly screen applicants and evaluate the risks of insuring an individual before issuing an insurance policy. That is why many states have something called a contestability period for life insurance.

What a Contestability Period Means For You

If an insurance policy has a contestability period and an insured dies within that period, the insurance company has a right to contest the claim. The insurer will review the application for errors and misstatements and may request medical records and other evidence to support or contradict the information on the application.

A contestability period is generally two years, although some states have shorter periods. After that period ends, the insurance policy is generally considered incontestable, meaning that the insurance company cannot deny coverage because of something that happened during the application process.

The Top Three Reasons for Denial After the Contestability Period

There are a few reasons a beneficiary might receive a letter saying, “life insurance payout denied” after the two-year contestability period.

Life insurance Claim Denied Due to Lapse

One of the most common reasons insurance payouts are denied is because someone stopped paying the premiums and the policy lapsed. There is usually a window of time after a policy lapses in which the policy can be reinstated. However, when the policy is reinstated, a new contestability period may begin. If your life insurance claim was denied due to lapse, call us – we may be able to help you.

Life Insurance Claim Denied Due to Misrepresentation

Life insurance claims may be denied after the contestability period if fraud was allegedly committed to obtain the policy. Some states include fraud under the contestability clause while other states allow insurance companies to include a specific fraud exception in the policy. Fraud exceptions say that if the policy was issued based on fraud by the applicant, the insurance company can refuse to pay as long as the fraud exception is in force. The company will have to prove that fraud was committed in order to avoid payment. State law also defines what information or omission can be considered fraud.

If the life insurance company denied your claim due to misrepresentation on the part of the insured on obtaining a policy, call us. We may be able to help you.

Life Insurance Claim Denied Due to Suicide

State law may allow exceptions to life insurance payouts based on the cause of death. Suicide and inherently dangerous sports are common examples of causes of death that insurance companies can exclude. Many policies contain a time period for the exclusions. In most instances, if an insured dies from an otherwise excludable cause after that clause has expired, the insurance company must pay the claim.

If you have received a “life insurance claim denied” notice, and it has been two years since the policy was issued to the deceased, you may have received the notice in error. It is also possible that the insurance company is acting in bad faith. Attorney Chad G. Boonswang has helped many people through the process of getting insurance companies to pay on life insurance claims the company initially denied. Contact Boonswang Law today for a free consultation.

If you or someone you know is struggling with thoughts of suicide, call the National Suicide Prevention Hotline at 1-800-273-8255 to access their national network of local crisis centers that provide free and confidential emotional support to people in suicidal crisis or emotional distress 24 hours a day, 7 days a week.

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