There are several types of life insurance fraud. As a policyholder, you need to know what kinds of mistakes or omissions on your application might cause your beneficiary’s claim for benefits to be denied. As a beneficiary, you need to understand how beneficiary designations can be changed fraudulently and how to fight that.
This article is written from the experience of the office of a noted Texas life insurance attorney.
Find out how to avoid being a victim of life insurance fraud.
Both policyholders and their beneficiaries should know that life insurance companies have little incentive to pay out and will seize upon any possible reason not to do so. Why? Because they only make money for their shareholders when they deny claims for death benefits or delay paying out.
For this reason, despite faithfully paying premiums over many years, your beneficiaries may not get the benefit you intended. Here’s how to avoid giving your life insurance company any reason to deny or delay your beneficiaries’ claims.
Make sure your personal information, such as date of birth, address, and occupation, is correct. Be sure to disclose all medical conditions, surgeries, and medications when you apply for life insurance. Also, fully disclose all of your lifestyle habits, such as drinking alcohol or smoking, as well as your hobbies. Why?
The life insurance adjustor uses this information to determine the risk you will die within the policy term. This assessment, in turn, determines how much you will pay in life insurance premiums. Those at greater risk of dying within the policy term, according to the adjustor’s tables, will pay a higher premium than those at lower risk of dying within the term.
As a matter of public policy, life insurance companies are permitted to deny beneficiaries’ claims for death benefits when the policyholder fails to disclose required information on the initial application and medical questionnaire. The purpose of this is to deter those purchasing life insurance from omitting facts or lying to obtain a lower premium payment. If you are a physician and omit medical conditions from your questionnaire, that is especially problematic.
Lying or omitting facts on your initial application and medical questionnaire is called “misrepresentation,” and your life insurance company will seize the opportunity to deny your beneficiary’s claim for death benefits if even the slightest mistake is unintentionally made.
For example, transposing numbers on a date of birth – recording 05/09/1987 rather than 05/09/1978 – is a misrepresentation that will get your beneficiary’s claim denied. And of course, if you fail to disclose a medical condition, smoking, or a hobby such as hang gliding or mountain climbing, and you die from something related to the undisclosed fact, your beneficiaries’ claims will be denied.
Review your application and medical questionnaire carefully for accuracy and completeness, especially if your insurance agent completes the application for you. Do not sign until you have reviewed the documents.
Life insurance companies rate travel destinations by the level of risk that a traveler may die there. Stability of government, infrastructure, and availability of medical care factor in. Travel destinations are categorized as either acceptable for travel, acceptable for travel with limits, and not acceptable for travel.
If you intend to travel, be sure you know how your destination is rated. If your destination is rated acceptable with limits or not acceptable for travel, you may not be covered by your insurance policy while there. Contact your life insurance company because you may be able to purchase a rider that ensures coverage while you travel.
Know also that if you are out of the U.S. for more than six months, your coverage may be put on hold until you return.
Review the alleged misrepresentation carefully. If the policyholder died within the first two years of the policy term, called the “contestability period,” the life insurance company can deny your claim even if the error or omission on the application or the medical questionnaire had nothing to do with the cause of death.
Take the example of the transposed year of birth above. The life insurance company set the premium amount based on an age that was nine years younger than the policyholder’s actual age. If your claim is denied for this reason, offer to pay the life insurance company the difference between what the policyholder paid in premium and what they would have paid if the life insurance company knew their actual age, and you will be able to pocket the rest of the death benefit.
An undisclosed medical condition or dangerous hobby can be handled similarly, especially if the undisclosed fact had nothing to do with the policyholder’s death or the contestability period has expired. If the policyholder was a physician who died of an undisclosed medical condition, you can argue that the policyholder would have disclosed it had they known of it.
Try negotiating even if the alleged misrepresentation is connected with the cause of death or the contestability period is in effect. Often misrepresentation can be shown as merely an honest mistake on the part of the policyholder, not made with the intent to defraud, and the beneficiary can be paid.
If a loved one passes and you find there was a last-minute life insurance beneficiary change, you should question it. Was the change made under duress? Was the change made under persuasion when the policyholder was not competent to make that change? Was the change made by someone with power of attorney?
The law differs from state to state, but in each state, someone formerly designated as a life insurance beneficiary has the standing to challenge a last-minute or otherwise suspicious beneficiary change in court. Was the change made to someone caring for the policyholder? Is a supposed love interest of the policyholder the new beneficiary? Is the new beneficiary someone with undue influence over the policyholder?
Your burden of proof will inevitably be high. However, if the facts support a fraudulent beneficiary change, you can seek recourse in court. The life insurance company will delay paying out benefits until the dispute is resolved.
About the Author
Veronica Baxter is a writer, blogger, and legal assistant living and working in the great city of Philadelphia. She frequently works with and writes for Boonswang Law, national life insurance beneficiary attorneys based in Philadelphia.
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