It’s hard enough to lose a loved one. But what can you do if your loved one’s life insurance company won’t pay a death benefit?
— Brendan Bridgeland, board member of the Center for Insurance Research
It doesn’t happen very often. “Unlike disputed auto or property claims, such instances are extremely rare in life insurance for the obvious reason: It’s hard to fake being dead,” says Brendan Bridgeland, former executive director and now board member of the Center for Insurance Research, a nonprofit consumer organization based in Cambridge, Massachusetts.
That said, when it does happen, families and heirs are often ill-prepared to challenge a claim denial. In fact, their blind pursuit of answers can sometimes do irreparable harm to their case.
Why won’t the insurance company pay up?
Here’s what you need to know about the life insurance claim process and how best to challenge a denied claim.
There are 4 key reasons that a life insurer may question or deny Uncle Ted’s death benefit:
- He failed to pay premiums on time, causing his policy to lapse. “The main reason a company will deny a death benefit is because coverage is not in force on an individual upon which the claim is made,” says Jack Dolan, spokesman for the American Council of Life Insurers, a Washington, D.C.-based trade organization. “Sometimes people let their policies expire and don’t inform their beneficiaries of the lapsed coverage.”
- He lied or otherwise made a “material misrepresentation” on his application. “In life insurance, the 2 things that affect pricing are your health and age,” says Bridgeland. “If he said he was 40 instead of 45 on the application, they may not cancel the policy, but they may subtract the additional premium due from the benefit amount.”
- His death fell outside the scope of coverage. Although exclusions have been disappearing from policies in recent years, most policies still exclude suicide within the first 2 years of coverage and certain accidental deaths, such as during the commission of a felony. Older policies also may exclude death during military service, acts of war, aviation, dangerous pastimes such as scuba diving and mountain climbing, and health perils such as HIV.
- His family or heirs failed to provide the necessary documentation. “What you’re most likely to encounter is the paperwork requirement,” says Bridgeland. “Even at the simplest level, a death certificate, it’s not enough to say, ‘Ted died.’ That’s not going to start the payment process.”
Don’t accept denial
If the claim is denied or delayed, try to find out why. Don’t let the insurance company give you the runaround, Bridgeland says.
“Contact your state’s department of insurance or attorney general. It doesn’t take much more than a call from the state, and it’s going to clear up very quickly and not cost you any legal fees,” he says. “But if the insurer fails to respond within a reasonable time or denies a claim you feel is valid, you should contact a lawyer.”
And the sooner the better, according to David Spain, an attorney with Morgan & Morgan law in Orlando, Florida, who specializes in denied insurance claims.
“As soon as you get a denial or have not received a favorable result, you need to reach out to a contingency lawyer,” he says. “You can absolutely set back your case by trying to do it yourself.”
Why you may need an attorney
Huge manholes await the unprepared. “For instance, if they send you back a refund on the premium, that means they’re trying to void the policy,” says Spain.
Also, cases involving employer-based life insurance policies that fall under the Employee Retirement Income Security Act of 1974, or ERISA, come with a 60-day appeal period that can easily expire without an attorney’s help.
Spain routinely reviews claims cases and offers legal advice for free.
And while he boasts that his success rate at trial is close to 100%, that’s not his 1st choice.
“I’ve resolved many cases simply by putting together the right records, the right arguments, the right case law and a letter explaining the position to the insurer,” he says. “Of course, then they know you’re serious, too.”
Beware 2-year ‘contestability window’
Despite what films like “The Rainmaker” may lead us to believe, Spain says bad faith or fraud on the part of the insurer are exceedingly rare.
Most often, his cases come down to deaths that occur during the 2-year “contestability window” when insurers can contest a claim based on misrepresentations or omissions by the insured, or a failure of the insured and/or the heirs to understand the nature and complexities of the application and coverage.
“What I see is overly complex applications for life insurance and overly detailed policies with exclusions that are calculated to benefit the insurance company that will be overlooked by most consumers,” he says. “I’ve seen people who were absolutely convinced that they had life insurance that would pay off the house, when what they had was an accidental death policy.”
Bottom line: If the insurer stalls, contact the state. And be prepared to call a lawyer.