Robert and Maria are both 45. They have two children, both in school. They apply for a $250,000 life insurance policy on Robert’s life so that Maria will not have to work after her planned retirement at age 65. They consult a life insurance agent. When Robert dies prematurely at age 60, the life insurance company denies Maria’s claim. It turns out that Robert had a health problem that was not disclosed. The insurer claims, “If we had known that fact, we would not have taken on the insurance risk on Robert’s life.” Maria is devastated. She must stay at her work long past age 65 or face financial hardship.
Life insurance is sold with one key promise. When you die, your family or estate will receive the money you planned. Really, when people buy life insurance they sacrifice their current interests for those who they leave behind. Unfortunately, this promise is often broken. What do you do when an insurer refuses to pay a death benefit claim?
All too often, life insurers refuse to make good on their promise. They say this is because that the policy application contained false information. Life insurers often take this position without a fair consideration of the law that protects you. The takeaway? Do not accept an insurer’s refusal at face value: investigate. Where you can, insist on payment.
Let’s look at what happens when an insurer denies the death benefits in the life policy. The insurer usually says that the person who died failed to disclose important health facts at the time of the application for insurance. This sounds simple but it is anything but. If you read the application and the health questions carefully, most people will agree these questions are general, unclear and outright confusing. One question might read, “Have you ever had a headache?” Really, who hasn’t? How are consumers supposed to recognize what is a serious headache that should be reported? And if that person’s doctor made a note of a serious headache, what if the doctor did not explain this to the patient?
It is the life insurer’s duty - its legal obligation - to ask specific questions which can be understood, and then accurately answered by the consumer. Rarely do the insurer’s questions meet this standard. Sometimes, the applicant for life insurance makes two answers that are not consistent with each other, or does not give any answer to a question. In these cases, the insurer has a duty to follow up on these questions. Often, it does not. Then, it bases its refusal to pay the death benefit on that error.
The Life Agent
Most life insurance is sold through the life insurer’s agents. The agent owes the insurance client a duty to ensure that the client understands the importance and meaning of these questions. Then the agent must make sure that the answers include all relevant information given to the agent. Often, agents focus on the sale of the policy. Not on obtaining and reporting complete and accurate answers. When this occurs, the agent can be the legal cause of the refusal.
When the beneficiary named in the policy applies for the death benefit, the insurer denies the claim. Often, the life agent is no longer around. What is the beneficiary to do?
The answer is to seek the advice of a lawyer experienced with the specifics of life insurance claims. A knowledgeable lawyer can assess the costs and benefits of pursuing the life insurance claim. In our experience, almost all such claims are resolved once the insurer takes the time to consider the facts and law.
If you have a claim for a death benefit denied by a life insurance company, contact the experienced lawyers of the Financial Loss Advisory Group of MBC Law Professional Corp. For more information, visit www.lifeclaimdenied.ca.
Harold Geller is a founding member of the FLAG, the Financial Loss Advisory Group of MBC Law Professional Corporation. He is often consulted by regulators and consumers organization about life insurance industry issues.