How long have you had your life insurance policy? If you, or your spouse, has had a life insurance policy for less than two years, you might not be as covered as you have been lead to believe. Did you know that insurance companies are allowed limitless rescissions for the first two years of a life insurance policy? It’s not something they advertise.
My husband and I finally got our life insurance policies just a few weeks ago. We have been paying the premiums each and every month, including the month that we were waiting for all the paperwork to go through before we were approved. I thought this meant that we were “safe”. We went through a medical exam, and answered questions about our health. The insurance company approved us. That should be it, right? Not in some cases!
Every year, thousands of beneficiaries of life insurance policies have their claims denied or disputed by the insurance company. There are many reasons why an insurance company will dispute a claim. It could be because someone stopped paying their premiums. They deny claims if the person who the policy was for died due to suicide. If the insurance company feels that “foul play” has occurred, especially if the beneficiary is thought to have killed someone for the money the life insurance policy will bring them, the insurance company will deny the claim.
The biggest reason why an insurance company would dispute a claim is for something called “material misrepresentation”. What does that mean? It is a term used when an insurance company feels that a customer did not disclose vital health information to the insurance company when that person was approved for a life insurance policy. Here is where the problems begin. Since insurance companies are allowed to completely rescind coverage on life insurance policies that are less than two years old, they can use this as a loophole.
Where does this leave people like me, who have a brand new life insurance policy? It leaves us up in the air. Some insurance companies are waiting until after someone dies, and then going digging through that person’s medical records, in the hope of finding information that they can use to deny a claim for coverage. It seems incredibly unfair! I certainly don’t recall my insurance agent mentioning anything about this. Fortunately, not all insurance companies are likely to behave badly towards their paying customers. Even so, I am completely unsettled by this news.
Image by Donald Hines on Flickr