How Lawyers Uncover Hidden Life Insurance Policies

Life insurance is a vital tool in managing funeral costs and providing financial stability for loved ones. However, the process of claiming life insurance can be challenging, especially when a claim is denied. In such cases, seeking legal assistance from a lawyer specializing in life insurance can be beneficial. Lawyers can provide expert advice, assess the likelihood of success, and guide beneficiaries through the complex claims process. While hiring a lawyer may not always be necessary, it can be crucial in ensuring beneficiaries receive the financial protection they deserve.

Disputing a beneficiary

Grounds for Disputing a Beneficiary

Disputes over beneficiaries often arise when the policyholder has remarried or divorced and not updated their policy, leading to an ex-spouse being named as the beneficiary. State laws may allow for changing beneficiaries after a divorce, and divorce decrees may enable a former spouse to make a claim if the divorce orders were not followed. Federal laws, such as ERISA, may also override the policyholder's designation for employment-based insurance.

Disputes can also occur when beneficiaries are changed late in the policyholder's life, especially if the new beneficiary is unexpected or out of character. Previous beneficiaries may suspect coercion or question the mental capacity of the policyholder, leading them to challenge the new designation.

The Process of Disputing a Beneficiary

In response to the dispute, the insurance company typically files an interpleader action, which transfers the responsibility of deciding the rightful beneficiary to the court. The insurance company deposits the policy benefits into a court-controlled account until the dispute is resolved.

The court then determines the rightful beneficiary through litigation or settlement. Litigation involves the involved parties presenting their arguments and evidence in court, after which a judge makes a decision. Alternatively, the parties may reach a settlement outside of court through mediation or arbitration, which is then ratified by the court.

Costs and Delays

Challenging a beneficiary designation can be costly and time-consuming, involving legal fees, court costs, and potential delays. This process can also hold up the settlement of the deceased's estate, leading to additional expenses such as taxes and maintenance costs, reducing the overall value of the inheritance.

To avoid the high costs and lengthy duration of court battles, some families opt for mediation or arbitration as alternative dispute resolution methods, which can be more amicable and cost-effective while preserving relationships and the estate's value.

Preventative Measures

The best way to avoid beneficiary disputes is for policyholders to keep their life insurance policies updated, reflecting any changes in their life circumstances. Clear communication about significant changes can also help prevent misunderstandings and disputes after the policyholder's death. Regularly reviewing life insurance policies is essential, especially after major life events such as marriage, divorce, birth, or death.

Accidental death claims

Accidental death insurance is a form of life insurance that pays out if the insured dies as a result of an "accident". This is typically defined as a death that is both sudden and unexpected, such as a car crash, drowning, or fatal fall. Accidents usually exclude events like acts of war, death caused by illegal activities, or death from an illness.

Accidental death benefits are optional riders that can be added to basic life insurance policies at the request of the insured party. They are not included in standard life insurance policies, and as an optional feature, the insured party must pay an additional fee on top of their regular premiums. Accidental death benefits are important for people who work in or around potentially hazardous environments, or those who drive more than average, either professionally or as a commuter.

When it comes to making a claim on an accidental death insurance policy, it's important to pay attention to policy requirements that specify when claims must be filed. Claims can be filed as soon as a death certificate is available, but if the claim is governed by the Employee Retirement Income Security Act (ERISA), a decision should be issued no later than 90 days after the claim is submitted. If a claim is denied, it's important to seek legal assistance immediately. Not every lawyer is well-versed in handling accidental death insurance cases, so it's crucial to find one with a proven record of winning such cases.

In terms of the cost of hiring a lawyer, there are a range of payment options available depending on your financial circumstances and the case. While you can pay by an hourly rate, many clients are not prepared to put up attorney fees and costs upfront. A common arrangement is that the initial consultation is free of charge, and the case, if pursued, is handled on a contingency basis, with the lawyer taking a proportion of the policy's death benefit as payment.

The first step a lawyer will take is rarely to launch formal legal action. Instead, they will try to resolve the claim by getting the proper documentation and presenting the appropriate legal arguments supporting it. If the insurance company can be convinced to tender the policy, the process may be as short as a couple of months. However, if the statute of limitations is approaching, litigation may be necessary to resolve the matter in a timely manner. It's important to note that there is no dependable way to know how likely you are to prevail in your case, and insurance cases can take several years to resolve due to the impact of the pandemic on court backlogs.

Life insurance and divorce

Life insurance is often overlooked during divorce proceedings, but it is an important part of the process, especially for couples with children. Sorting out life insurance during a divorce involves making necessary beneficiary changes, accounting for the cash value in whole or universal life policies, and protecting alimony and child support income. Here are some key considerations regarding life insurance and divorce:

Beneficiary Changes

One of the most important steps in dealing with life insurance during a divorce is updating the beneficiaries. In most cases, married individuals list their spouse as the primary beneficiary of their life insurance policy. However, after a divorce, individuals typically no longer want their ex-spouse to profit from their death. Therefore, it is crucial to redesignate the beneficiary to ensure that the policy aligns with the individual's wishes following the divorce.

Accounting for Cash Value

Some life insurance policies, such as whole life and universal life policies, accumulate cash value over time. This cash value represents part of the couple's net worth, and it is essential to include it among the marital assets to be divided during the divorce. In an even division of assets, each spouse would receive half of the cash value from the policy.

Protecting Alimony and Child Support

For the spouse who takes primary custody of the children after the divorce, protecting alimony and child support income is crucial. In the event of the non-custodial parent's death, the loss of this income could leave the custodial parent in a challenging financial situation. To mitigate this risk, it is advisable to maintain a life insurance policy on the ex-spouse, with a benefit amount sufficient to replace the lost child support or alimony until the children become financially independent.

Determining Coverage Needs

When discussing life insurance during a divorce, it is essential to consider the financial situation of the ex-spouse in the event of alimony and/or child support payments ending. This calculation will help determine the necessary coverage amount to ensure the financial security of the surviving ex-spouse and any dependent children.

Paying Premiums

Deciding who will be responsible for paying the life insurance premiums is another important consideration. While having the ex-spouse pay the premiums may be convenient, there may be concerns about the possibility of default. To address this, the divorce agreement can include a provision requiring the ex-spouse to maintain the policy and make timely payments. Alternatively, the ex-spouse can add the other party to the policy record to receive duplicate billing and lapse notices.

Reasons for claim denial

There are many reasons why a life insurance claim may be denied. Here are some of the most common reasons for claim denial:

Withholding Information on the Application

If an insured person dies within the first two years of the life insurance policy coming into effect, the insurance company can contest the policy. This means they will investigate the deceased's medical records and background information. If the insurance company finds any discrepancies or false information, they may deny the claim. For example, failing to mention smoking habits, a history of substance abuse, or pre-existing chronic ailments can lead to claim denial.

Death Due to Drug or Alcohol Abuse

Life insurance companies often exclude deaths related to substance abuse, deeming them as self-inflicted. This exclusion can be misleading, as it may cover any cause of death that occurs while under the influence of illegal substances, even if the cause of death is unrelated.

Illegal Activities

Most life insurance policies include illegal activities as a reason for denying claims. This can include driving under the influence, injury or death during a car accident due to speeding or not wearing a seatbelt, participating in illegal protests, or the illegal consumption of drugs or alcohol.

Dangerous Hobbies and Activities

Life insurance policies typically do not cover deaths resulting from hazardous activities, whether recreational or otherwise. These can include activities such as bungee jumping, skydiving, or scuba diving. If the insured person engaged in such activities and failed to disclose them when purchasing the policy, the insurance company may deny the claim.

Not Paying Premiums

Life insurance policies are usually only active as long as premiums are paid. If a premium payment is missed, the policy may lapse or terminate. Denial of claims due to lapsed policies is very common, and insurance companies often use non-payment of premiums as a reason for denial.

No Beneficiary Designation on File

If the insured person failed to name a beneficiary, the insurance company will pay the proceeds according to state law or the policy terms. Such cases may result in delays and denial, as the insurance company may pay the benefits to the wrong person.

Failure to Disclose Relevant Personal Information

Insurance companies may deny a claim if the insured person failed to disclose information needed to accurately measure the risk of a policy payout. This includes medical history, risky hobbies, risky behaviours, and dangerous occupations.

Death During the Contestability Period

Policies have a contestability period, typically lasting two years from the date of purchase. If the insured person dies within this period, the insurance company can investigate the application for any incorrect or false information. Even if the cause of death is unrelated to the misrepresentation, the insurance company may still deny the claim.

Other Reasons

• Not reporting major life changes or providing documentation: Failure to update the insurance company on major life changes, such as marriage, divorce, having children, switching jobs, or moving, could result in the denial of a claim.
• Beneficiary not updated after a divorce: In some states, a former spouse may be automatically revoked as a beneficiary, but these laws have exceptions. If the insured person does not update the beneficiary after a divorce, it may lead to a denial of the claim.
• The insured named their "children" or "relatives" as beneficiaries: When a beneficiary is not a specific person but a group, it may result in a delay or denial of the claim.
• The insured did not name a spouse as a beneficiary in a community-property state: In these states, a spouse may claim a portion of the proceeds from the deceased spouse's policy, which can delay or deny the claim.

It is important to note that if you believe your life insurance claim has been wrongfully denied, you have the option to seek legal representation and dispute the denial.

Claim appeals

There are several reasons why a life insurance claim may be denied. Some of the most common reasons for denial include:

• Material misrepresentation: If the policyholder provided false information, such as age or health history, the insurance company may deny the claim, arguing that the false information or omission invalidates the policy.
• Non-payment of premiums: If the policyholder did not pay all their premiums, the insurance company may deny the claim.
• Two-year contestability period: If the policyholder died within two years of purchasing the policy, the insurance company may deny the claim.
• Policy not in force: The insurance company may claim that the policy was not in force at the time of death.
• Ambiguous policy language: The insurance company may interpret ambiguous policy language as invalidating the claim.
• Suspicious circumstances: If the death occurred under suspicious circumstances, the insurance company may deny the claim.
• Insurance fraud: If the policyholder committed insurance fraud under state law, the insurance company may deny the claim.

If your life insurance claim has been denied, there are a few steps you can take to appeal the decision:

• Get everything in writing: Contact the insurance company and ask for a written explanation of the reason for the denial. This will help you understand the specifics of the case and give you a specific reason to dispute.
• Consult a life insurance lawyer: An experienced life insurance lawyer can review the reason for the denial, investigate the facts, and determine if you have a valid claim. They can also communicate with the insurance company on your behalf and help you navigate the appeals process.
• Pursue legal action: If necessary, your lawyer can help you file a lawsuit against the insurance company. However, this should be a last resort, as it can be a lengthy and costly process.

It is important to note that you may be able to get a free consultation with a life insurance lawyer to discuss your case and determine your best course of action. In some cases, you may be able to pay your lawyer on a contingency basis, where they receive a percentage of the policy's death benefit only if you succeed in your appeal.

Frequently asked questions