Life insurance provides a simple yet sometimes expensive solution to protect the family from financial troubles after your death. You pay a fixed premium for an agreed number of years to the insurer.
In return, the insurance company assures it will hand over the entire amount of money you have paid, plus incentive, to your survivors. Ideally, insurance companies should payout on policies after the insured person’s death. Sadly, many do not.
Insurance companies exposed
Popular American TV program, ’60 minutes’ aired by globally acclaimed TV news channel CBS made a shocking revelation. The CBS investigative report titled ‘Unpaid Life’ telecast in April 2016 claimed, insurers do not pay a majority of beneficiaries of life insurance policies.
CBS journalists spoke to legal experts, insurance company officials and bereaved families to prepare the report, which was aired across US and other countries.
CBS, an extremely respected and responsible news channel based in New York City, followed up with other reports to further consolidate its allegations. These startling reports by CBS should serve as eye opener to anyone holding or wanting to buy life insurance.
Staking a life insurance claim
Beneficiaries of life insurance have to follow very simple procedures to claim the money. You need to submit completed insurance claim forms, death and last rites certificates of the deceased and legal papers proving your claim.
Most insurance companies assure they will pay within a 30 to 60 days of the insured person’s death. Yet, insurers are deft at finding loopholes in your life insurance policy to deny full or part payment of the insurance claim. We take a look at why this occurs.
1. Absence of nomination/ bequest/ will
This is the most common reason cited for denying life insurance payout. Insurance companies will ask for the maximum number of documents before paying.
If you have not nominated a person as beneficiary while buying the policy, insurance companies can deny payout. In some instances, they will ask for a notarized bequest or will. In addition, the claimant will have to prove identity and right to stake the insurance claim.
2. Withholding vital facts about yourself
You are responsible fully for providing accurate information while buying the policy. Withholding information such as your medical condition, nature of job and other information they seek while buying a policy. If your job is risky, the insurers need to know it. Fudging or giving incorrect information about self also becomes ground for disqualifying payout claims.
3. Abandoned policies/ unpaid premiums
Insurance companies exercise their right to deny payouts on life policies that are abandoned by the deceased. They can also deny payments if the insured person has defaulted on paying premiums to keep the policy updated.
4. Insufficient coverage of life
Different types of life insurance policies are sold by companies. Some assure payout in the event of death due to medical causes. Others limit payout to death after the insured person has attained particular age.
A few insurance policies cover both- death by old age and medical reasons. Some policies offer payouts after you attain a particular age. Meaning, you have outlived the life insurance. If you do not claim the payout while alive, your relatives will be unable to do so after your death. They need to file proceedings for claiming lost money of deceased relatives.
5. Death by accidents
Be careful to read fine print and understand its implications. Insurance companies define accidents in different ways. Your policy might not cover accidental death in your kitchen or backyard or fall from stairs.
In case of traffic accidents, insurers can deny payout on grounds you were traveling in a vehicle whose registration or insurance had expired. They can try to prove the vehicle was not roadworthy. Some policies do not cover death in air crash or accidents at sea or water bodies
6. Obvious self harm/ suicides
This can include almost anything from falling off a tree to trying to fix an electric fuse at your home. It also includes alcohol and substance abuse. Insurance companies can deny payout if they conclusively prove you exposed yourself to harm.
7. Addictions, HIV/ AIDS
Addictions such as alcohol, tobacco, and drugs are considered as grounds for denying payouts. The insurance company will also abrogate an insurance claim if the deceased person frequented female or male commercial sex workers and hence prone to HIV/ AIDS. Companies deny life insurance to addicts and those known to seek paid carnal pleasures and put themselves at risk of the fatal disease.
8. Geographical limitations of your policy
Remember, some life insurance policies are valid only within a specific geographic area. This may include your city or town, state or country, and the world. Local insurance is cheaper compared to worldwide insurance. Such policies do not permit beneficiaries to claim insurance if you die outside the territorial limits prescribed in the policy.
9. Delayed insurance claims/ Statute of Limitations
Insurance companies allow sufficient time for bereaved families and beneficiaries to claim payout. Insurance companies are within their rights to deny payout if they are not informed about the death of a policyholder within the prescribed time span. Your beneficiaries will need to initiate processes to claim lost money of deceased relatives.
10. Death in mysterious circumstances
Everyone is well aware of the John Darwin case. Darwin disappeared mysteriously from a canoe trip in the UK in 2007. His wife claimed life insurance and other post-death benefits of the husband. It helped pay the couple’s home mortgage and made them rich temporarily.
Darwin surfaced a few years later in Panama, holidaying with his wife. British police arrested the couple. The case received worldwide attention. Any death in mysterious or dramatic circumstances will be investigated by insurers and police. Payouts are denied if your death occurs in mysterious circumstances.
11. Unpaid debts, mortgage, credit cards
A life insurance policy covers the family against any unpaid debts incurred during your life. A valid, proven claim by these creditors on your life insurance can deny the beneficiary of payout. The debt automatically passes to your heirs. It may also go towards settling any mortgages you left behind.
12. Death in hostile regions
Every nation frequently issues travel and safety advisories for its citizens who plan to travel abroad for leisure or work. These travel advisories explicitly warns why you should avoid visiting a particular place or country. Insurance companies can absolve themselves of payout to survivors, if you travel to such place and die, whatever the reasons of your death.
13. War and terrorism
The 9-11 terror attack on US served to awaken the world about the horrors of terrorism. Series of surprise attacks at different places worldwide by radical Islamic terrorists are common nowadays. Remember, your insurance policy may not cover death by act of terrorism. Most companies charge extra premium for such coverage.
If you are working or need to visit a war or conflict zone for work, your life insurance policy can become invalid. You require special insurance coverage for traveling to war and conflict zones or areas with high terrorism threat.
14. Black-out periods
Your life insurance policy can include a black-out period. Meaning, it can remain suspended for brief span of time. There are many reasons for this such as travel abroad or temporary hazardous work. Check with your insurer whether there are any blackout periods on your policy.
15. Buying the wrong policy
Nowadays it is common to buy life insurance online. Also buying from insurance agents is popular. An unqualified insurance agent can sell you a wrong policy or something that does not suit your needs.
Insurance companies can hide several negative features of a policy while selling online, under cleverly masked ‘bargain’ and ‘discount’ schemes, special offers. Buying a policy without understanding its nitty-gritty can deny the payout to your beneficiary and put paid to all your investment.
Safeguard your money and family
You need to remember a few simple tips while buying life insurance. Utmost important is to read all fine print, rejoinders, disclaimers, exclusions, additions and whatever other clauses that come loaded with the policy.
It is wiser to consult a financial lawyer to find exactly what the policy entails, your rights and those of beneficiaries. Life insurances are no guarantee that your family will get some pecuniary benefit post your death.