Lapse is one of the most common reasons life insurance claims are denied.
When a life insurance policy “lapses,” it means that the policyholder or designated payor has not paid one or more required premium payments. Premium payments are required to keep a life insurance policy in force. Policies may require a monthly, semi-annual, or annual payment of a premium.
Most, but not all, states require notices with specific information (designated via state statute) to be sent to the designated payor of the policy when a premium has been missed and a policy is in danger of lapsing. Failure to fulfill these payments can lead to termination of the policy entirely.
Beneficiaries, take note – if the life insurance company has not complied with the notice requirements of the state, the policy may still be enforced, even if years have passed since the last payment was made. For example, one of our client’s claim was denied ostensibly due to lapse, yet we were able to get her paid. The insured let the insurance company know that he was no longer receiving monthly bills for the premium, yet he continued to make monthly payments. His last premium payment was just short of the amount required, and he died one month later. His beneficiary’s claim was denied. But because we could argue that the insurance company failed to send the required payment, lapse, and termination notices to the insured, it had to pay our client.
Keep in mind that this case study is true, however, we cannot guarantee similar results in any other matter.
Lapse when the Insured is Ill
A common scenario that leads to a policy lapsing is when the insured falls seriously ill or is facing a decline in mental health. These individuals often miss their premium payments due to their illness. Courts have been willing to take this scenario into account, especially if the insured has loyally paid their premium up until the time that he fell ill.
The Boonswang Law Firm has extensive experience dealing with these scenarios and have found tremendous success with these illness-related lapse cases. In one such case, the insured paid premiums for 34 years and was diagnosed with dementia in June 2018. The insurance company issued notice in September 2018 of a premium payment due in October, which the wife believed she paid. When the insured dies and the wife’s claim was denied, we used the payment history to show that policy lapse did not occur until six days after the death of the insured, and she was paid the death benefit. Again, these situations are very fact-specific and we cannot guarantee this result in your matter.
Lapse when the Insured had Flexible or Vanishing Life insurance Premiums
Some policies offer the insured options as to the amount they must pay in premiums to maintain life insurance coverage. As convenient as exercising this option may be for the insured, it opens the door to administrative error on the part of the life insurance company. If payments are not accurately applied, the policy can lapse.
Reinstatement of an Insurance Policy After Lapse
If your policy lapses, there can also be an option to apply for reinstatement of the policy. When one applies for reinstatement, however, the insurance company gets the opportunity to review your most recent medical records to reconsider whether they would agree to insure you. If your application for reinstatement is accepted, this also resets your two-year contestability period. Thus, if the insured dies within two (2) years of the effective date of the reinstated policy, the insurance company may contest or deny payment of the death benefit based on any misrepresentation on the reinstatement application.
Life Insurance Claims Within the Grace Period Will Be Paid
Since life insurance policy proceeds are assets upon which many families rely after a loved one has passed on, there are laws in place mandating a grace period when a lapse occurs. Once a premium payment is missed, the grace period begins. Therefore, if the insured dies within the grace period (usually 30 days), the insurer may still be required to pay the death benefit. The grace period also allows time for someone who missed a payment for financial, health, or other reasons to catch up and make the payment before the policy lapses. Once the grace period is over, however, the policy is considered lapsed and the insurance company will deny payment of the death benefit.
One of our clients was the beneficiary of a policy and her claim was denied due to lapse. However, the insured had been only three days late on the premium payment, and died three days after that – well within the grace period. We got our client paid.
In another case we handled, the insured fell into a coma and no one in the family knew of the life insurance policy until they received a notice claiming to be a Lapse Notice, informing of a past-due premium, that the grace period had expired, and that the policy lapsed. There was no information in the Notice indicating when the policy had been paid through, or when the grace period began or ended. Insurance companies are required to provide a 60 day grace period, not concurrent with any time paid coverage is in effect, and must mail a notice of pending lapse to the insured at least 30 days before the effective date of termination of the policy. We argued that since this insurance company could present no evidence that it had complied with these requirements, the policy must remain in effect, and our client was paid.
Again, keep in mind that although these are real results for real clients, we cannot guarantee the result of any other matter.
If Your Claim Has Been Denied Due to Lapse or Termination, You Need an Attorney to Fight for You
If you have not been paid due to lapse of the life insurance policy, you should contact the national life insurance lawyers at The Boonswang Law Firm. The problem could be lack of notice – many states require insurance companies to notify policyowners that they have missed one or more premium payments. If an insurance company has not followed the lapse notice laws of your state, you may still be eligible to receive the policy’s benefits.
Our attorneys are very well-versed in analyzing the lapse notice laws of states throughout the country. Our concentration in this area has helped us hold insurance companies accountable when they have not complied with the law or when they have been negligent in their accounting or administration of the policy, bringing countless families the financial security that they need by obtaining death benefits that are rightfully theirs.