Sound familiar? It happens more often than one would think. If this happens to you or someone you love, don’t feel powerless – there is something you can do about it.
Even if Denied, You May Still Receive the Benefits
When someone buys a life insurance policy, whether through AARP or another administrator, the insurance company’s obligation to pay the designated beneficiary is contingent upon whether the monthly premiums have been paid. Simply put, if the policyholder does not pay the insurance company, the insurance company will not pay the beneficiary.
Yet there are exceptions to this general rule. Read on to discover the circumstances under which a beneficiary might yet receive the insurance proceeds even if there is a lapse in payment and the claim is initially denied.
What Happens When There is a Lapse in Payment?
Insurance companies typically have a “grace period” for making late payments, usually around a month from the due date. If the insured fails to pay on time, there is an opportunity to make up that payment and remain covered during this grace period. Be sure to check with the insurance provider to find out whether a cure of the lapse occurred within the policy’s “grace period.” Also, the policyholder may have had flexible or vanishing life insurance premiums and the life insurance company failed to properly administer that.
Keep in mind also that if the insured died just after the lapse in payment, you may be able to recover payment with the help of an experienced life insurance attorney.
What Happens When There is a Lapsed Policy?
If the insured does not cure the lapse in payment within the grace period, the policy itself will “lapse.” This means that the insured is no longer covered under the policy.
Even if the insured had been making premium payments diligently for decades, if he or she missed one premium payment beyond the designated grace period, the policy is lapsed. If the insured dies just one day after the policy lapsed, you can bet that the beneficiary’s claim will be denied.
Even so, you should appeal that denial with the assistance of a seasoned life insurance attorney because there may be a way to get you paid. For example, recently we got a beneficiary’s claim paid in full where the insured, having faithfully paid premiums for over 28 years, was hospitalized with congestive heart failure and missed getting notice in the mail, and the notice itself was not compliant with state law.
In an even more egregious case, an insured paid premiums in full and on time for 15 years before being diagnosed with cancer and undergoing chemotherapy. The insured was never sent notice of non-payment, lapse, or termination, all of which are required by law. Our beneficiary client was paid in full.
Keep in mind that while these are real pay-outs, we cannot guarantee the same result in any other matter.
Following are several defenses available when coverage lapses. These depend primarily on the form of coverage purchased, the timing of the death, and the last premium payment made.
Term Life Insurance
If the insured had term life insurance, frankly, the options are limited. The policy will lapse, and future payments will not restart coverage.
The insured could “reinstate” the policy by contacting the insurance provider. To reinstate, companies generally require the insured to fill out another application and to let them know if his or her health has changed. Additionally, the insurance company may require a new medical exam before reinstating the policy. This depends on how long it has been since the “grace period” ended.
Upon reinstating the policy, the insured will have to retroactively pay the premiums for the time coverage lapsed. This means that the longer the insured wait after coverage lapses, the more money he or she will have to pay before the policy is reinstated.
But even if you are a beneficiary of a term life insurance policy that has lapsed, get in touch. We do everything we can to support an argument that you should be paid anyway. This include looking carefully at all of the facts surrounding the purported lapse, such as the timing of the death with the grace period, whether the required notices were sent, and whether they were sent to the right address, within the time prescribed, and containing all language required by statute.
Permanent Life Insurance
Permanent life insurance is more expensive than term life insurance, but it is also more forgiving of nonpayment. The two types of permanent life insurance are called whole and universal.
As with term life insurance, one option is to reinstate your previous policy by reapplying and retroactively paying the premiums you missed. If you cannot pay the required amount for reinstatement, however, there are two other choices available:
Permanent Life Insurance Policy Death Benefit and Cash Value
Many permanent life insurance policies combine a “death benefit” (i.e. how much the beneficiary gets paid if/when the owner dies), as well as a “cash value.” This cash value functions as a savings investment separate from the death benefit. In this case, you may have the option to “cash out” your life insurance by withdrawing the policy’s cash value (i.e., its accumulated savings) when your death benefit coverage lapses.
Permanent Life Insurance Nonforfeiture Clause
Some permanent insurance policies include a nonforfeiture clause which provides that if the insured stops paying premiums, he or she still receives some sort of benefit.
If coverage lapses, the insurance company will refund part of the premium payments and/or pay the policy’s cash value. With some policies, coverage will not lapse in case of nonpayment. Instead, the policy will remain in place but with a reduced death benefit calculated as a percentage of the paid premiums.
Again, if you are a beneficiary of a lapsed policy, get in touch so that we can see if there are any arguments to be made that you should be paid anyhow. Even if your claim cannot be paid in full, the life insurance company may settle for the death benefit amount minus what the insured should have paid in premiums.
AARP (Or Some Other Life Insurance Company) Denied My Life Insurance Claim – What Can I Do?
If you are unsure of the reason your claim was denied, the first thing to do is contact an experienced life insurance lawyer to review your case. You may also wish to contact the insured’s insurance agent and ask for details regarding premium payments made, the policy’s grace period, reinstatement options, nonforfeiture provisions, and notices sent. The date of death and the date of the latest premium payment will be especially important facts to have in hand. For your information, AARP is merely the administrator of AARP life insurance policies, and some other company underwrites them.
Don’t take the initial denial of your life insurance claim lying down. Take action, especially if one or more of the following applies to your situation:
- You know or believe the policyholder paid all the premiums and yet your claim got denied, or
- You think the insurance company failed to notify the policyholder that payment was due, or past due, or lapsed, or,
- If you believe, based upon the dates of death and of the last premium payment made, that there was an administrative error causing a lapse in the policy when there should not have been a lapse.
Contact an experienced life insurance lawyer to evaluate possible solutions. This firm gets beneficiaries paid!