There has always been a stigma attached to life insurance and life insurance companies that they really will do all they can to get out of paying a life insurance claim. People really want, on some level, to believe life insurance companies really don’t pay out millions and billions in death benefits.
Probably the biggest point of concern is the contestability clause. During the first two years of a policy, upon presentation of a death claim, the company can essentially re-underwrite or at the very least review in depth their original underwriting. They can also dig further to see if there is any connection between the cause of death and an incorrectly answered question on the application. An example might be that you forgot or failed to mention seeing a doctor about chest pain. Those records were never sought during underwriting and therefore the whole issue of chest pain wasn’t underwritten. During the contestability period, if you died from some cardiac related issue, they would probably do a more thorough review to see if there was anything that you had talked to your doctor about or if you had been referred to a cardiologist.
If the information that comes up clearly indicates they would have declined the application, the death benefit could go unpaid and the premium paid would be returned to your beneficiary. If the information shows that you would have been approved, but at a higher rate, the death benefit would be paid minus the difference between what you should have been paying and what you actually paid.
There are agents out there that will suggest that just not mentioning an issue will be OK. After all, live two years and it is incontestable anyway. Run, don’t walk, from that agent. He is playing poker with your family’s future for the sake of his own personal gain on the sale.
So, are you obliged to divulge information that clearly is not asked for by the insurance company? The simple and honest answer is no! A great example of this is on the Genworth Life application concerning foreign travel. It asks “In the next two years do you intend to travel or reside outside of the United States for more than 4 consecutive weeks other than for vacation”.
It doesn’t ask about past foreign travel. It doesn’t ask about work related travel that lasts less than 4 consecutive weeks. It doesn’t ask about vacations at all. We have been over and over this question with Genworth underwriters and they mean for it to be answered exactly the way it is asked. Do they want to know that you work as a translator in Iraq 3 weeks out of every month? The honest answer is no and if they don’t ask and you die there, they can’t contest that issue. Do they care if you plan on vacationing for the next nine months in Africa or the middle East? The honest answer is no. They don’t ask about vacations. They even state that they aren’t asking about vacations.
Are you withholding information by not admitting to something like your intention to vacation in less than stable areas of the world. The answer we have received from the bottom to the top of Genworth is no.
I was asked today to see if I could find someone who would write a new policy on someone that was going to skydive. It’s a one time thing, a birthday present, but they want to have life insurance that covers it. I reviewed about 20 company applications and they all ask about skydiving. Most ask about anything in the last 5 years or anything anticipated in the future. One company though asked, “Have you engaged in auto, motorcycle or boat racing, parachuting, skin or scuba diving, skydiving, hang gliding or any other hazardous avocation or hobby”. There is no question in the application about future intent or plans to skydive so this person can honestly answer the question no and because although they plan to they haven’t done it in the past. Not contestable.
These aren’t trick questions by companies. When they want to know about future plans, they ask. The same company asks their aviation question “Flown as a pilot, student pilot, or crew member, or intend to fly as such?”
Bottom line. Honest answers are always, always the way to go, but if they clearly don’t want to know a piece of information, don’t muddy the waters by giving it to them anyway.