Issues Involving Life Insurance Coverage

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

Life insurance coverage can provide an invaluable form of financial security for your family in the event you pass unexpectedly.  Whether you purchase a life insurance policy as an investment vehicle or a form of financial security against an unanticipated tragedy, you might reasonably presume that your insurer will honor its contractual obligations to your beneficiaries.  This blog discusses common problems that arise that can derail this expectation.

Does the insurance carrier have the right to unilaterally cancel your insurance coverage?

While an insurance carrier can cancel your policy once the policy period has begun, the permissible reasons for such a cancellation are limited.  If you fail to pay your premium even after mandatory notices and any applicable grace period has elapsed, non-payment of premiums can constitute a legitimate basis for cancellation.  If you engaged in fraudulent misrepresentation when completing your insurance application, false statements or non-disclosures also can also justify a cancellation.  However, the fraudulently provided answers or undisclosed facts must be “material,” which means the insurer would not have issued the policy or done so under the same terms had the carrier been aware of the facts at issue.

Will divorce impact your life insurance coverage?

The impact of a divorce decree on the beneficiary under a life insurance policy varies between states.  In some states, a final divorce judgment automatically invalidates the designation of the former spouse as an insurance beneficiary.  The policyholder in such a jurisdiction must update the beneficiary designation if the divorce decree provides that the beneficiary of the former spouse will not change.  Even if this common arrangement was not part of the property division in the divorce, the insured will need to execute a new beneficiary designation naming the new intended beneficiary.  If the insured fails to take this step, the death benefit will be paid to the estate of the decedent.

Do you need to identify the beneficiary of your life insurance policy in your will when preparing an estate plan?

A life insurance policy is not an asset that must pass through the probate process.  If the beneficiary designation has been completed, the death benefit will be paid directly to the beneficiary without the need for probate.  Since using the beneficiary designation can make the distribution of life insurance benefits more efficient and less costly, the policyholder really has no reason to list the insurance policy or beneficiary in a will.  Further, modification of a will is more complicated and costly than changing an insurance beneficiary designation, which provides another reason that an insured might not want to reference the policy and beneficiary in a will.  When the will and beneficiary designation conflict because one of the documents was not updated, this can mean that the right to policy proceeds must be resolved in probate court, which will cause unnecessary expense and delay.

Will your life insurance policy automatically lapse if you miss a premium payment?

Insurance companies are not allowed to quietly ignore a missed payment only to deny a claim many years later.  Every state requires notice prior to cancellation after a payment has been missed.  The insurer must also grant a grace period before terminating a policy.  The specific grace period depends on state law.  Because of the relatively high value of benefits under a life insurance policy, this type of coverage usually has a longer grace period, such as 30 to 60 days during which your policy remains in full force and effect.  Most policies can be reinstated after they have been cancelled for up to a five year period if past due premiums and loans against cash value have been repaid.  However, the insurer might impose requirements like submitting to a new medical exam.

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].

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