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Typically, life insurers do come through on their policies, paying out billions in death benefits on individual policies each year. Still, thousands of claims are disputed or denied annually. The amount of money withheld each year, several hundred million dollars, has continued to climb.
To some insurance companies, business is just business, and that means making money. For them, the goal is to bring in as much money as possible while paying out as little as possible.
Incorporating exclusion clauses into life insurance policies is one way insurance companies aim to reduce their risks of having to pay out large sums of money. One such exclusion is the “dangerous activity” clause, which may “deny” coverage to those who engage in activities such as skydiving, unless those individuals choose to pay a higher rate to have that exclusion removed from their policy.
If an insured person dies within a specific period of time, typically two years following the issuance of a life insurance policy, the company may use any number of exclusions to justify rejecting the claim.
The insurance company may spend however long it wants investigating the possibility that the information provided was inaccurate or deceptive. According to some consumer advocates, some insurers have turned the contestable period into a “gotcha period,” taking advantage of every possible flaw, error, misstatement or omission to reject a beneficiary’s claim to death benefits.
The insurance company may insist the insured person misrepresented his medical condition and refuse to honor a claim for benefits, citing “material misrepresentation.” Or the company may challenge an “accidental death,” saying it was suicide.
To make matters even worse, the company may have noticed the “flaw” or “misrepresentation” at the time the policy was issued but chose not to clarify or correct it. They did so knowing the insurance company could later refuse to honor the claim.
There are two main categories under which a life insurance company may contest your claim.
An omission is the number one reason an insurance company denies a death benefits claim. If you fail to disclose information that the insurance company has decided is important in assessing risk, the company can deny a beneficiary any death benefits.
In essence, if you omitted something — anything — from your application that the insurance company thinks matters, your beneficiary’s claim can be rejected. This is true even if that omission had nothing to do with your cause of death.
For example, perhaps you forgot to mention a medical condition such as high blood pressure and you died in a car accident that had nothing to do with your high blood pressure. The insurance company may cancel your policy if that car accident occurred within two years of your signing the life insurance contract.
A material misrepresentation exclusion is often cited as the reason an insurance company denied a claim for death benefits during the contestable period. However, it is not restricted to the first two years after you purchase your policy.
If, at any time over the course of months, years or decades, the insurance company discovers you “misrepresented” yourself, it can cancel your coverage or deny a beneficiary’s claim.
For example, if you said you didn’t smoke and the insurance company found out that you did, the company could cancel your policy, even if you had stopped smoking.
Although state laws limit exclusions, life insurers may use specific wording or particular terms ambiguously and then later interpret that language in their favor to deny a claim. In fact, according to civil court cases nationwide, life insurers have found numerous, creative ways to avoid paying death benefits to beneficiaries.
They do this by manipulating facts, inventing excuses and even discounting official autopsy reports. Skilled representatives also know where to look for loopholes.
Life insurance companies may also interpret exclusions to their advantage. For example, an insured person might accidentally hike on someone’s private property and suffer a heart attack. In that case, the insurance company could refuse to pay death benefits because the person was engaged in an illegal act, trespassing.
“Dangerous activities” is another gray term. One person’s “dangerous” acts might not be considered dangerous to another person.
Many insurance companies feel secure in the ambiguity of their exclusions and terminology. They have expert legal advisors on hand to interpret life insurance policies in the company’s favor.
They count on this — that someone who has recently experienced the death of a loved one will not have the stamina or knowledge to file a lawsuit contesting a life insurance claim that has been denied.
This is where Weitz & Luxenberg wants to step in. We can help you recover the death benefits that are rightfully yours.
We specialize in helping people appeal that denial and win.
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