It’s well known that a life insurance policy is contestable during the first two years the policy is in effect. What is not as well known is that if a policy lapses, and then gets reinstated (put back in-force), a new two year contestability period begins at the reinstatement date.
In one of our recent claims successes, a 20-year old policy had lapsed, was reinstated, and the insured died within two years. Knowing the insurer would challenge the claim, the beneficiary came to The Center for Life Insurance Disputes for help.
The Center, as part of its complete analysis, first looked at why the policy had lapsed. What we found was quite interesting. There was a point in time that the insured had missed a premium payment of $60.00. Thus, according to the insurers accounting, they were correct to lapse the policy.
What our investigation also uncovered was that the insurer had been over-charging the policy $4.00 a month, for three and a half years — much more than the delinquent $60.00 premium.
The policy included a rider which covered the insured’s two children until the age of 25. The cost of the rider was $4.00 per month. According to the policy, this coverage ended when the youngest child reached the age of 25.
The Center quickly brought this to the attention of the insurer because, the insured’s youngest child had reached the age of 25, three-and-a-half years before the policy lapsed. If the rider charge had not been taken from the policy for those three-and-a-half years, the policy would not have lapsed when the $60 premium was missed.
The insurer argued back that they were within their rights to have taken the charges from the policy, even though no coverage was in effect on the child, because it was the responsibility of the insured to notify the insurer that the child had reached the age of 25.
The Center countered this argument by pointing to the application, which gave each child’s name, age and date of birth. The insurer had this information in its possession since the policy was applied for, and this was the notification.
Again, the insurer steadfastly stuck to its position that it was within its rights to have charged, and kept, premiums for coverage that did not exist after the child had reached the age of 25.
The Center proved that the insurer was wrong to have charged for the rider after the child turned 25, and pointed out that another major life insurer had attempted the same argument in a Class Action lawsuit — and suffered a significant financial penalty in losing its argument in court. And had the rider charge not been taken, the policy never would have lapsed or needed to be reinstated. Without the reinstatement, the policy was not contestable, and the death claim proceeds were due and payable immediately.
Even though the insurer did not acknowledge any agreement with The Center’s interpretation of the policy, the insurer did, quietly, pay the $150,000.00 claim.
If you have a contestable life insurance claim you would like to discuss, contact us:
Contestable life insurance claim.