Whether you are a new parent engaged in financial planning for your child’s future or a senior implementing an estate plan, life insurance can be a tool that many people use to ensure the financial security of their loved ones. There are some policyholders who have the foresight and responsibility to utilize this form of financial security, but they are not around to learn that their insurance carrier failed to deliver on its promise. Insurance carriers frequently scrutinize the terms of a policy and investigate underlying facts to deny a claim. As an experienced adjuster before becoming an insurance claims lawyer, I am uniquely situated to guide beneficiaries through the process of pursuing a life insurance claim. Based on my background involving thousands of insurance claims, I have provided some answers to questions everyone should know about life insurance.
What types of life insurance are available?
Basically, life insurance policies can be divided into two broad categories: permanent and term. Permanent life insurance provides coverage until the death of a policyholder regardless of age as long as the insured continues paying premiums. This form of life insurance is typically an estate planning tool that involves an investment component to the policy. Because of this investment function, which can be used as a wealth transfer mechanism, the premiums are usually higher for permanent life insurance.
Term life insurance provides coverage against premature death for a fixed term, such as twenty years. Once the end of the term period has been reached, the insured generally is relieved of the obligation of making premium payments, and the coverage ceases. Term policies are intended for income replacement in the event of the death of a family breadwinner rather than as a mechanism for inter-generational wealth transfers.
How does life insurance function?
Life insurance provides a way to transfer wealth or to hedge against the risk of a premature death. If you die, life insurance provides financial security, so your family can continue making mortgage payments, college tuition payments and other expenses necessary to continue your family’s lifestyle without the benefit of your income. A life insurance policy is essentially a contract between the policyholder and the insurer agreeing that if the policyholder makes premium payments the insurance company will pay out a preset amount to an insured’s beneficiaries.
How do I know that I need life insurance?
If you and your spouse have financial obligations like a mortgage that depend on your income for continued payment, life insurance is a way to facilitate payment of that obligation if you pass away.
Can I rely on social security benefits instead of life insurance?
Survivor benefits under a social security policy are only paid if the surviving spouse has dependent children under the age of 18 or if the surviving spouse is age 60 or above. This criteria means families may face a considerable period of time without social security benefits. Even if your surviving loved ones qualify for social security survivor benefits, the government imposes a “family cap”, so the amount received does not meet the needs of most families.
Why do I need to be aware of the contestable period?
This period is important because the insurance company can rescind the policy based on material misrepresentations during this period. In Florida and most other states, the contestability period is two years. When an insured passes away during the contestability period, the insurance company will investigate the information provided in the application. The insurance company has the burden of proving that incorrect or missing information would have impacted the decision to issue coverage or substantially affected the premium amount.
Can a life insurance policy be cancelled without notice?
No, the insurance company must provide written notice if a policyholder is in jeopardy of having a policy cancelled because of non-payment of premiums. The life insurance company must provide notice to the policyholder before the expiration of the grace period regarding the need to make the premiums current.
If you have questions about your life insurance coverage or your claim as a beneficiary has been denied, my law firm represents policyholders in claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM.