Battling For Benefits: Fighting For Life Insurance Claims

Life insurance is a type of insurance contract that provides financial protection for loved ones after the policyholder's death. While life insurance serves as a safety net for beneficiaries, disputes over claims do occur, and understanding the steps to take in such situations is essential. Disputes can arise from various factors, such as property damage, personal injury, contractual issues, or long-term disability claims. When facing a denied life insurance claim, it is important to review the reasons for denial, which may include policy delinquency, material misrepresentation, contestable circumstances, or documentation failure. Understanding the specific objections and providing additional supporting documentation, such as medical records or insurance payment receipts, can help contest the denial. In some cases, seeking legal advice or assistance from state-level insurance specialists may be necessary. To avoid potential claim denials, policyholders should be honest and forthcoming in their applications, understand the terms and conditions of their policies, and consider setting up automatic premium payments to prevent policy lapse.

No beneficiary named

In the event that no beneficiary is named on a life insurance policy, the proceeds will typically go to the insured's estate. This can cause a delay in the payout being distributed and may result in the payout not being allocated according to the policyholder's wishes.

If the policyholder does not have a will, their estate, including the death benefit, will need to go through probate court. This can be a lengthy and costly process, potentially taking over a year to complete, and can cause conflict among loved ones. During probate, a court will determine how the policyholder's assets, including life insurance policies, are distributed if they have not specified their wishes.

To avoid this, it is recommended that policyholders name multiple primary and contingent beneficiaries and regularly review and update their beneficiary designations. Keeping beneficiaries informed about their status and providing them with relevant policy information is also important to ensure a smooth claims process.

Multiple beneficiaries

It is possible to have multiple beneficiaries on a life insurance policy. This can be done by specifying any number of "co-beneficiaries" and splitting the death benefit among them. The policyholder may choose to have the benefit distributed evenly among the beneficiaries or specify the percentage of the death benefit each beneficiary will receive.

There are two types of beneficiaries: primary and contingent. The primary beneficiary is the first in line to receive the death benefit. A contingent beneficiary may receive the death benefit in place of the primary beneficiary if specific, predetermined provisions are satisfied. In most cases, this means that the primary beneficiary is deceased or unreachable.

It is possible to designate multiple primary co-beneficiaries, as well as multiple contingent co-beneficiaries. For policies with multiple primary beneficiaries, the contingent beneficiary will likely only receive the death benefit if none of the primary beneficiaries are reachable.

When there are multiple beneficiaries, each beneficiary will need to fill out a separate claim form to receive their portion of the funds.

Policyholder's mental capacity

Policyholders' Mental Capacity

The policyholder is the individual who purchases and controls the life insurance policy. They are responsible for its continued payment and upkeep. The policyholder is usually the insured, but this is not always the case.

Who Can Own a Life Insurance Policy?

Adults who are of legal age (usually 18 or older) and have the mental capacity to understand the terms of a contract can own policies on themselves or others, like family members, to whom they have an insurable interest.

Mental Health and Life Insurance

Mental illness is not uncommon, and insurance companies are typically welcoming of people with mental health conditions. However, they will want to know what your life is like with mental illness and whether you are able to care for yourself. They may also be interested in your ability to keep a job, with exceptions for those who are retired or have a physical disability.

In addition, insurers may ask how serious your condition is, how long you have had it, and whether you are undergoing successful treatment. The more independent you are, the more likely you are to get coverage.

Policyholder's Mental Incapacity

If the policyholder is ill or not of sound mind when making changes to their policy, a family member might dispute their choice of beneficiary. Disputes can be time-consuming and costly, and it may be difficult to prove fraud or that the policyholder was coerced into changing their beneficiary.

Power of Attorney

A properly appointed power of attorney can update beneficiaries of a life insurance policy.

Fraudulent update

A fraudulent update to a life insurance policy's beneficiary designation can occur when an individual other than the policyholder changes the ownership or beneficiaries of a policy. Forgery is a serious issue and can result in prosecution.

Forgery-based fraud impacting policy ownership may delay a claim's processing. In the case of a fraudulent update, the insurance company will likely take interpleader action, which means that they will put the claim in the hands of the courts to decide who the true beneficiary is. This can be a costly and time-consuming process, as the courts will expect the individual making the beneficiary dispute to prove their claim with substantial evidence.

To avoid a fraudulent update, the policyholder should ensure that they have witnesses when making changes to their policy, especially when changing beneficiaries. It is also important to keep life insurance policies up to date and review them regularly.

Divorce and remarriage

Impact of Divorce on Life Insurance:

The impact of divorce on a life insurance policy depends on the type of policy and the terms of the divorce settlement. Term life insurance policies are generally not considered financial assets, while the cash value of permanent life insurance policies may be treated as joint financial assets. In some cases, a court may order one or both spouses to purchase life insurance to support their ex-spouse or minor children in the event of their death.

Updating Life Insurance Post-Divorce:

After a divorce, it is essential to review and update your life insurance policy. This includes removing your former spouse as the primary beneficiary and designating a new beneficiary, such as a new partner, adult children, a trust, or other relatives. If there are children involved, you may want to list them as beneficiaries, but it is often more practical to designate a custodian or create a trust to manage the insurance payouts in their best interests.

Alimony and Child Support:

Life insurance can play a crucial role in protecting alimony and child support payments. If you have primary custody of the children or share custody with significantly different incomes, the court may order the higher-income spouse to purchase life insurance to secure future child support obligations. Life insurance can also be used to secure alimony payments in the event of the paying spouse's death.

Policy Ownership and Premium Payments:

Divorce can raise questions about policy ownership and premium payments, especially when child custody arrangements are involved. If you have doubts about your former spouse's financial reliability and have primary custody, consider becoming the policy owner and paying the premiums yourself. This ensures continuity of coverage and prevents lapsed payments.

Adequate Life Insurance Coverage:

After a divorce, you may need to purchase a new life insurance policy or adjust your existing coverage. The policy should provide enough financial protection until your youngest child becomes a legal adult. Consider factors such as the cost of raising children, continued care for dependents, income replacement, and funeral expenses when determining the adequate coverage amount.

Life Insurance as a Marital Asset:

Whether a life insurance policy is considered a marital asset depends on the type of policy. Term life insurance policies are generally not treated as assets, while permanent life insurance policies with cash values are typically considered joint assets and may be subject to division during divorce proceedings.

Remarriage Considerations:

When it comes to remarriage, it is essential to update your life insurance policy again. You may want to designate your new spouse as the primary beneficiary and make any necessary adjustments to the coverage amount and beneficiaries, especially if there are children from a previous marriage involved. It is crucial to consult with a financial or legal professional to ensure that your life insurance aligns with your new circumstances.

Frequently asked questions