Ed Hinerman On Life Insurance

Life Insurance Contestability Clause!

Probably one of the most misunderstood parts of life insurance is the incontestability clause and what it really means. The question from clients is most often framed something like, “How long does the policy have to be in force before it pays?”

There are guaranteed issue policies that truly have a waiting period before they will pay a death benefit, usually 2 or 3 years, but that is different from the 2 year incontestability period in a traditional policy. The following attachment is the clause as it appears in most policies.

incontestability-clause

A couple of important things to note. Statements (or answers to questions) in the application can be used to contest or defend a claim. If you fail to mention something in the application that is relevant to the life insurance policy and how it was approved and issued, it can be used to contest payment of the policy if you die during the first two years. That is why I have stressed so often in this forum that you really can’t be too honest when it comes to sharing health history with your agent. It not only helps them find you the best rates, but protects your interests during the incontestability period.

The other thing that is important to note is the statement that the company will not contest the policy after it has been in force for two years.

It isn’t unusual for a person to honestly not remember every detail of their health history or to accidentally leave some small detail out. While this may ruin most people’s image of life insurance companies, they really aren’t looking for a way not to pay claims. They are protected from material misrepresentation through the two year clause, but the remedy if they find some inconsistency is not always to void the contract and not pay the death benefit.

Hypothetically let’s say a person gets approved for a $250,000 policy and its’ cost is $1000 a year. The person dies after a year and the company reviews all of his medical records and finds new information that wouldn’t have precluded them from issuing insurance, but would have moved them to issue the policy a higher premium, say $3000 a year. The company then has a choice. If they believe it was an attempt to commit fraud and the additional health information contributed to or caused his death, they might deny the claim. If, however, it was simply an oversight on the part of the insurance company during initial underwriting, or if the information would have led to a higher rate but didn’t contribute to the death, the other remedy the insurance company might use is to adjust the premium. In that case they would change the premium to $3000 for the year it was in force and deduct the difference from the death benefit making it $248,000.

I think it is also worth noting that suicide is covered after two years, not because I think people should buy insurance for that purpose, but because there are a lot of claims that go unpaid because beneficiaries assume companies won’t pay in the event of suicide.

Bottom line. Know your policy. Always tell the truth and don’t leave out even small details.

1 comment June 12th, 2008

Breast Cancer! A Winnable Battle!

Last year my father, age 85, did battle with bladder cancer. He was blessed with great doctors and literally hundreds of people praying for him. Today you wouldn’t even know that he had been through a fight with a high grade, high stage cancer that takes more lives than it passes by.

Today I leave for Wyoming again. Tomorrow my mother will have a lumpectomy to remove a tumor from her breast. Again, I ask you to pray. All of the previews indicate that the cancer is contained in the lump and unless something different is found during surgery, her prognosis is good.

Breast cancer is the second most common cancer among women, as with prostate cancer in men, only second to skin cancer. With improved screening and more education about self examination, breast cancer is more commonly found these days in early stages. As with all cancers, the earlier the cancer is found the higher the survival rate.

While my Mom is 84 and not likely to be shopping for life insurance, if she were, the news would be good. A lump, or encapsulated tumor, is relatively easy to treat generally by removal of the tumor and radiation therapy. If the biopsied tumor did in fact show it was a low grade tumor and had not spread, a woman could expect that life insurance would once again become affordable as little as a year post treatment.

When you do reach that point of being ready to shop for life insurance, a few helpful hints. Pardon my broken record, but find a good independent agent with a good working knowledge of breast cancer underwriting and a good track record of results. Obtain and keep a copy of your post surgical biopsy so that the agent and the life insurance underwriters know exactly what they are dealing with and quoting. Accurate and complete information will lead to better offers and results.

Bottom line. Breast cancer is becoming more survivable each year and has made enormous strides over the past ten years in its’ treatment by life insurance companies. Start formulating a game plan with an independent agent as little as six months post treatment.

Add comment June 12th, 2008