With the possible exception of AARP, life insurance companies truly go out of their way to make sure every legitimate life insurance claim is paid and if the legitimacy of the claim is in a gray area, could really be seen both ways,  they will almost always come down on the side of the insured.

I got a distress email and call from a lady today whose father in law had passed away and the insurance company, Protective Life, denied the claim. The policy had lapsed when a premium was missed and he completed a reinstatement application and the policy was reinstated based on the fact that he had indicated there was no change in health since he had first taken the policy out. To be more precise the application for reinstatement asks about the last time he was seen by a doctor and for what reason. It also goes through the whole drill down of possible health issues including 8c, “cancer, tumor, polyps, moles, basal or squamous cell carcinoma, melanoma, leukemia, lymphoma, or any other growth of malignancy”.

So please bear with me on this. Having a claim denied is even more devastating than when someone dies and doesn’t have any life insurance at all. In this case someone knew it was there and they knew it was the father’s intent that he and his wife receive it and now it won’t happen. The issue I want to drive home is how important it is that premiums are paid, how important it is to have a second addressee on notices, and how this can be avoided by having payments on an eft.

So, when this gentleman’s daughter missed the payment, she also apparently missed the late payment notice that goes out during the grace period and also, in almost all cases there is an offer sent out to reinstate by just sending premium. Had there been a second addressee this might have been caught at any of those three stages. This man had terminal cancer and likely had a lot on his mind other than paying bills. He should have had a backup or when he was told he wouldn’t live that much longer, someone close to him should have suggested putting the policy on an eft so there was no chance of lapse.

That didn’t happen and he finally got a notice saying that the policy had lapsed and that in order to reinstate it he needed to complete a reinstatement application. According to his daughter in law several insurance policies had lapsed during this period and that as he reinstated auto insurance and homeowner’s insurance he and then life insurance he just became used to noting that nothing had changed because. Whether I buy that story or not is neither here nor there. The problem is that he had misstated or misrepresented his health on the reinstatement application. Whether he completed that application or not, he signed it. The daughter in law wanted to enlist me to fight Protective because they had not indicated in the reinstatement letter that the reinstatement triggered a new two year incontestability period. I read to her from a policy I had on hand what it says in the policy regarding reinstatement and incontestability, “If this policy is reinstated, it will be incontestable after it has been in force for two years from the effective date of reinstatement.” Protective did exactly what they should have done.

When the insured died a few months later from the cancer, Protective pulled medical records as is their right and it was obvious very quickly that the insured or whoever filled out the application for reinstatement on his behalf knew that he was dying at the time. That was materially misrepresented on the application and therefore the policy was successfully contested. There are 3 points I would like to make about this.

1. Read the policy before you put it in force. If you are going to have someone pay your bills for you, make sure they understand what it means to miss a payment and to have to reinstate a policy.

2. Don’t designate one person to pay the bills. People make mistakes. Have a second addressee for bills and notices and also consider putting the premiums on an automatic bank draft.

3. Don’t ever lie to an insurance company. That is fraud.

Bottom line. This is an unfortunate situation that could have been avoided at several points. The beneficiary of the life insurance policy won’t be getting the $500,000 and Protective is right in not paying it. Unlike some of the situations with AARP I have talked about recently there was good, sufficient reason to deny this claim. If you have any questions or would like to discuss a claim situation where you believe the company’s decision was wrong, call or email me directly. My name is Ed Hinerman. Let’s talk.