This is the conclusion of our three-part blog series on life insurance contestability issues. Part I explained how the contestability period works and the public policy basis for establishing a time limit applicable to voiding insurance policies based on fraud during the application process. In Part II, the discussion shifts to why policyholders generally cannot “game the system” by being dishonest when submitting an application for life insurance coverage. This final installment discusses important points that every life insurance applicant and beneficiary should know to mitigate the risk of facing contestability period problems.
Key Facts to Know about the Contestability Period
The contestability period has a significant impact on many attempts by beneficiaries to seek death benefits, which makes it important for applicants, policyholders and beneficiaries to be aware of the following facts:
Insurers Must Pay Claims Even If Some Facts Are Wrong: If an insured dies during the contestability period, the insurer might respond in one of two ways after discovering false information in the application. Depending on state law and the situation, the insurer might modify the death benefit to adjust the premium to what it would have been if the insurer was informed of the actual facts. Alternatively, the insurer might deny the claim entirely. If a beneficiary is notified that a carrier is pursuing either of these options, full recovery might depend on obtaining prompt legal advice and representation from an experienced Florida Life Insurance Claims Lawyer.
The Contestability Period Can Be Reset: Because expiration of the contestability period generally will protect beneficiaries from denials based on misrepresentation grounds, policyholders need to be aware that this period can be subject to a “reset” under certain circumstances. If the policy lapses because of non-payment of premiums, this might result in a restart of the two-year window. A reset also might occur if the insured endeavors to transfer the cash value of a permanent life insurance policy into a new policy. This type of transaction is common to facilitate an improved return on investment.
Recovery of Benefits Often Takes Longer If Death Occurs During the Contestability Period: Depending on the circumstances surrounding a death, a claim during the two-year contestability period might take longer to resolve. Although an investigation of the claim will delay payment of death benefits, insurers do not investigate every death during the contestability period. When the death results from a motor vehicle collision or a similar unanticipated fatal accident, the carrier might not investigate this type of claim. By contrast, the insurer will likely commence an investigation when the cause of death is related to a health condition like lung cancer or mesothelioma. The insurer will look for undisclosed personal habits like smoking or occupational exposure like a job working in a shipyard. When an investigation is undertaken during the contestability period, loved ones might have a longer wait before receiving benefits.
Contestability Gamble Not Worth the Risk: While an individual could decide to gamble on the possibility that he or she will live beyond the contestability period, the stakes make hiding material information too great a risk. The applicant faces the possibility of criminal charges while family members might receive no benefits. These consequences are likely to significantly outweigh the short-term benefit of reduced premiums.
Death during the Contestability Period Does Not Relieve Insurer of Contractual Obligations: Although an insurer can investigate the information provided in the application when the insured dies during the contestability period, the carrier is not excused from its policy obligations. Even if the insured dies within minutes of signing the policy application, the insurer must pay the death benefit if the information is accurate and other terms and conditions of the policy are satisfied.
Insurers Often Request a Range of Documents to Investigate a Claim in the First Two Years of the Policy: The insurance carrier often requests a multitude of documents when investigating a life insurance claim. Examples of documents the insurer might gather and review include the autopsy report, medical records, employment records, and a statement from the insurance agent. The carrier also might question friends and family about such topics as medical history, personal habits, lifestyle choices, occupational background, and hazardous activities.
Our Miami insurance claims law firm invites you to contact us if you are having difficulties with your insurance company. Miami bad faith insurance claims lawyer J.P. Gonzalez-Sirgo handles claims disputes involving life insurance death benefits 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.