Insurance, especially life insurance, can be a very confusing topic for most Americans. We often pay various insurance premiums our whole lives. Understanding the nuts and bolts of your life insurance policies can benefit you and your family greatly in the unfortunate event of your death or the death of a family member.
Life insurance comes in a bewildering array of variations. There's whole life insurance, variable life insurance, and universal life insurance, all of which are collectively known as cash value life insurance policies. With these policies, a portion of the premium you pay goes to purchase insurance coverage, while another portion is used as an investment. Taxes on the investment portion of the policy are generally deferred until you collect the proceeds.
If you are married, especially if you have dependent children, or if you have debts such as a mortgage, car payment, or credit card balances, your family could be at serious financial risk if you should die suddenly and your income were suddenly no longer available. Spouses are often left unable to make all the payments, raise the children, educate them, etc. on a single income. Life insurance is your family's protection against the drastic lifestyle changes that occur in the event of your death.
We tend to think that if we buy life insurance and pay the premiums, then upon our death, collecting the life insurance will be easy for our beneficiary, but that is not always the case. Life insurance companies review each claim carefully before parting with their money and some life insurance claims are denied. Apart from fraud in the policy on the part of the policy holder, the most common ground life insurers use to deny claims is that there was a "material misrepresentation" on the life insurance application. That misrepresentation may occur in the original application for insurance or in a later amendment to the application.
A material misrepresentation sufficient to deny a claim cannot be just any misstatement. Under many states' laws, a material misrepresentation is one that, if fully and truthfully disclosed, would have led to refusal by the insurance company to issue the life insurance policy. Material misrepresentations accusations are commonly made about just about anything on the life insurance application including the person's employment history, age, income, other insurance in force, whether or not they smoke cigarettes, driving record, drinking history, hobbies, etc. The most commonly alleged misrepresentations involve the applicant's heath and medical history.
Recovering money from an insurance company that denies a life insurance claim is no easy task. Many life insurance claims are paid without much fuss on the part of the insurer, but there are times when claims are delayed and denied. The claims that are subject to the most suspicion are the ones filed in the first two years the policy is in force. In many states, the insurance company can deny the claim by retroactively rejecting the application if it finds that the application contained a "material misrepresentation".
Like most insurance companies, life insurance companies are regulated on the state level. If you have questions regarding your claim, its delay or its denial, contact your state department of insurance and an experienced life insurance claim denial attorney.