The purpose of a life insurance policy is to protect families in the event of the death of a loved one. Policy holders are correct in assuming that, when they pass away, their life insurance policies will provide financial security and stability for their loved ones that were left behind. However, even though a life insurance policy is a binding contract, and policy holders pay their premiums, we often see life insurance claims delayed and/or denied.
Common Reasons for Delay or Denial of Life Insurance Claims
Two of the most common tactics utilized by life insurance companies to deny and/or delay claims include:
• Canceling a policy retroactively to ensure that the claim does not have to be paid
• Claiming a misrepresentation by the policy holder on the insurance application, then canceling a policy retroactively
Many times, when insurance companies receive notice of a death, a quick review of the policy holder's payment history will be performed. Unfortunately, even though an insurance company may accept late payments over a period of many years, and even though the policy premiums may be current at the time of the policy holder's death, insurance companies often take the position that the payment made just before the death was late and therefore the policy was cancelled. This practice is unfair, and is many times, a breach of the insurance contract and a violation of state law. We have handled several cases involving these set of facts and may be able to help you if you find yourself a beneficiary of a life insurance policy in this situation.
Claiming a Material Misrepresentation on The Insurance Application
A material misrepresentation is any untrue statement, distortion of a fact or simple intentional concealment of a fact. Under the law, a misrepresentation on an insurance application must be significant enough that the insurance company would have refused to issue the policy in the first place. That is to say that when the policy holder initially applied for the policy, he or she did not meet the underwriting guidelines for that particular insurance company and the policy would not have been issued. A material misrepresentation is not a simple mistake about irrelevant facts, such as your eye color or a transposed number in an address or phone number. Material misrepresentations are those facts that would be significant to an insurance company assessing the risks of an applicant's untimely death.
Some of the most common misrepresentations made on insurance applications include, but are not limited to:
· Employment history
· The use of tobacco and alcohol
· Dangerous hobbies
· Whether the applicant has other life insurance policies
If misrepresentations are made concerning these issues on an insurance application, the misrepresentation can be grounds for denial of life insurance benefits within a PERIOD OF CONTESTABILITY.
What is a Period of Contestability?
Many states, as well as North Carolina, have laws that prevent an insurance company from contesting a claim for life insurance benefits for misrepresentations made on an application after a policy holder has paid for a policy for a certain period of time. In North Carolina, the period of contestability is two years. In short, this means that if a misrepresentation is made on a life insurance application, and the applicant has paid for the policy for more than two years (and the policy has not been cancelled or reinstated within those two years), the insurance company cannot deny a life insurance claim on the basis of an alleged misrepresentation made during the application process.
Insurance Agent Negligence
There have been many times where we have seen life insurance claims denied for misrepresentations made on applications by an insurance agent, rather than the person applying for life insurance. Many times, an insurance agent will complete an application for someone without asking all of the relevant questions on the insurance application. It is in the best interest of an insurance agent to have the application approved since most agents are paid on a commission basis. Therefore, there is an incentive to complete an application in a manner that would guarantee its approval.
Whether intentional, or by the negligence of the insurance agent, insurance applications are routinely completed with certain misrepresentations that could be used by the insurance company to deny benefits upon the death of the insured. If this occurs, you may not only have your original claim against the insurance company, but you may have a negligence claim against the insurance agent.
At The Law Offices of J. Edgar Halstead, III, PLLC, we will litigate these life insurance claims issues and have the experience to advise you and handle your case in a manner that will place you in the best position to recover the benefits you deserve.
This article regarding North Carolina Life Insurance Claims is for informational purposes only and is not legal advice. You may need to seek the advice of a Life Insurance Claim lawyer at The Law Offices of J. Edgar Halstead, III, PLLC, that has experience in these matters, to help you, if you have a Life Insurance Claim in dispute.