There’s a lot of assumptions about life insurance and probably the biggest and most important is that if you name someone as beneficiary, and you die, they will get your life insurance proceeds without any hassle. After all. You put there name there and paid the company for the life insurance, right?
Well, most of the time!! Let me provide a poignant example of just how badly that assumption can be shot down when you take the policy out of the context of a married couple. I had clients recently that took out policies on each other. They were engaged and had been together a long time and with or without marriage, recognized that the prudent thing to do was have life insurance in force. They had enough common interests that it made sense not to leave the other one hanging.
We wrote the policies and put them in force and everyone went about their business. About a year later I got a call from her saying that her fiance had died of a heart attack. I explained to her about the fact that the policy was still within the 2 year incontestability period and that once the claim was filed it would probably take a few months for the company to gather medical records and approve the claim. She was fine with that and I got a claim kit on the way to her.
It’s important to note that the need for medical records only occurs during the incontestability period. After that two year period claims generally just take a few weeks to process.
Here’s where the road got bumpy though. She received the claim forms and signed them as beneficiary, including the authorization to release medical records. A few weeks later we found out that the medical facilities wouldn’t accept her signed authorization because she didn’t have a legal right to sign it. She wasn’t his wife and had no legal standing based on being “just the beneficiary”.
So, she was stuck and turned to the family of her deceased fiance to authorize the release of records. Well, humans being what they are, the issue turned into a family fight and they collectively decided they wouldn’t sign it because they didn’t think she deserved it if they weren’t getting anything. They went back and forth and at one point the mother of the deceased offered to sign for half of the death benefit. That’s when my client retained legal counsel and long story short, six months after the claim was filed a judge finally provided her the medical power of attorney she needed to be able to legally sign the authorization. The claim is now on a fast track to be paid.
This is a potential problem for engaged couples, gay couples that don’t have a legal relationship, and business partners. Even though the potential only lasts for two years, it would be a prudent move to get a limited medical power of attorney just for this purpose.
Bottom line. It’s not a huge problem, but worth agents and potential insureds giving some careful thought to. In a perfect world my client could have turned to her fiance’s mother and the problem would have been taken care of. This isn’t always a perfect world.