I was recently interviewed by bankrate.com and MSNBC concerning some aspects of why life insurance companies might refuse to pay a death benefit. From the perspective of the consumer it seems there is a belief that companies really search for ways not to pay. In spite of big headline life insurance challenges like Heath Ledger and David Carradine, the truth is that life insurance companies would rather pay a death benefit than fight legal battles and get bowled over by bad press. There are a lot of times they pay when legally they really shouldn’t have to.
The article really focuses on on the two instances that trigger most of the questions of whether a company should pay or not. Those are the standard two year clauses in all insurance policies known as the suicide and incontestability clauses.
These two clauses simply put, allow a company to challenge payment of a claim if the insured commits suicide in the first two years of the policy, or if the insured is found to have materially misrepresented information pertinent to the company’s decision to issue the policy.
The suicide clause is pretty straight forward most of the time, although it has to be a clear cut case of suicide or the company will likely lean toward paying the claim. Shooting yourself would be an example of straightforward. A fatal car wreck might very well have been a successful suicide, but companies usually aren’t going to challenge this in most cases in the absence of some other evidence that would prove the person intended to kill themselves in a car wreck.
The larger contention usually lies with the incontestability clause. Was the person truthful and forthcoming in their application for life insurance? Was there an attempt to deceive and at least purposely leave out certain facts, material misrepresentation, that may have led to a company decision to decline an application or perhaps issue the policy at a different rate?
In the case of Heath Ledger there was the appearance that he may have run afoul of both clauses with his drug overdose death potentially being a suicide and the fact that he apparently denied drug use on his application. In spite of these two issues, while we’ll never know whether the full amount of the death benefit was paid, we do know that after a full investigation a death benefit was paid by the company.
Bottom line. When applying for life insurance always answer all questions exactly as they are asked and truthfully. You aren’t required to give them more information than they ask for and if that leaves some hole in their underwriting they can’t use that as a way to not pay a claim. As my friend and partner Rich Fuller with Special Risk Services noted in the article, don’t offer answers to questions that aren’t asked, so if they ask ‘Do you plan to be out of the country for more than four weeks,’ you really don’t want to tell them you’re going to Lebanon for three weeks. That’s not what the question is.”