I wrote some time back about the problems that can potentially occur when a person has life insurance with someone who is not related as the beneficiary. The potential problem only exists during the two year incontestability period when part of the claim process involves a review of medical records.

If there is a death during that period, a claim kit is sent out to the beneficiary and part of that claim kit is an authorization to release medical information. This enables the company to acquire the medical records necessary to confirm that the cause of death wasn’t known, but not revealed, during the underwriting process.

The potential problem comes up if the beneficiary doesn’t have legal standing to sign an authorization to release the records of the deceased. Wives have that standing. Fiancee’s don’t! Business partners with a legal buy/sell life insurance agreement have that standing. Business partners who just take out the policies and don’t have a legal buy/sell agreement drawn up don’t! Husbands and wives have that standing. Gay couples don’t!

In the absence of legal standing the authorization will not be accepted by doctors and hospitals who are so afraid of HIPAA laws. The next logical step is to have someone who does have legal standing sign the authorization, but that’s where things became sticky for my clients. The relatives of the deceased were mad because the fiancee was the sole beneficiary of the policy and they refused to sign the authorization. Aren’t people just awesome?

In this case it took five months for the beneficiary to finally get a court order forcing the release of the records to the insurance company. That came today. Now, where were we? Now the company can get on with processing the claim.

So how can this be avoided? If someone who is not related to you is important enough to be the beneficiary of your life insurance, make sure they also have a medical power of attorney that allows them to sign a release of records authorization.

Bottom line. A lawyer and a few extra bucks can save a huge hassle.