Purchasing a life insurance policy can bring peace of mind to many people knowing that their family members’ financial well-being is protected in the event of their death.
Chris Richard, personal injury lawyer in St Catharines and the managing partner of Graves and Richard, discussed on a recent episode of Legal Matters the importance of understanding the legal challenges that commonly arise with life insurance policies. He explained how to ensure that in the event of your death your beneficiaries are not prevented from collecting on the policy, and shared some important tips for approaching the application process.
Tip # 1: Accuracy is Key
Completing the life insurance application is not a mere formality. The application is perhaps one of the most important documents that you’ll ever complete because the stakes are high, and the accuracy of your answers will determine whether the insurance company is required to pay benefits to your beneficiaries.
It is vitally important to understand that an inaccurate statement on your application could result in a complete denial of benefits. Just because you complete an application, get an approval from your insurance company, and pay the premiums doesn’t mean that the benefits are automatically paid to your beneficiaries upon your death.
The approval from your insurance company simply means that they are agreeing to take on the risk as you have stated it in your application. If the information you have provided in your application is not accurate, the insurance company is not obligated in law to pay the benefits under the policy.
At the time a beneficiary attempts to collect on the policy, an insurance adjuster will view your medical records in the years preceding, and at the time of your application, to determine whether any inaccurate statements were made regarding your health.
Tip #2: Beware of the “Four-Question Application”
The Four-Question Application is an application for life insurance that contains four broad questions. These applications can be tricky to fill out because of the broad nature of the questions. The broader the question with respect to your medical history, the more likely it is that a medical condition you had at the time of the application, or in the years preceding, would fall within the scope of the question. If your life insurance application asks only a few broad questions, it is important for you to try and thoroughly recall any current or previous condition that could in any way fit within the parameters of the question.
Tip #3: Review Your Family Doctor’s Records
It is not always easy to recollect with perfect accuracy every detail of your medical history. It is very common for previous conditions to be forgotten because they were viewed as minor, or they resolved or substantially improved, and for dates to become confused or impossible to recollect.
For this reason, it is a good idea to review your family doctor’s clinical notes and records before you complete the application. This will best ensure that the information you include on your application is accurate and complete.
Tip #4: Purchase Life Insurance When You Are Healthy
It you try to get life insurance at a time when you have a health concern, you will likely be tempted to minimize it or not disclose it at all because of your concern that full disclosure will result in a denial of your application or astronomical rates. As discussed above, from a legal perspective, this approach, whether conscious or not, could result in the claim of your beneficiaries being denied. On the other hand, full disclosure of your health concern could result in a complete denial.
For these reasons, purchasing a life insurance policy when you are in a good state of health is advisable and offers the most affordable protection for your loved ones.
Tip # 5: When in Doubt, Answer “Yes”
When working with an insurance agent, if there is any doubt in your mind about the most accurate answer to a question regarding your medical history, answer “yes”.
It is the job of an insurance agent to sell you a policy. While they have a professional obligation to give you correct advice, they still have an underlying financial motivation to sell the policy. Because of this, you are wise to be aware of the guidance agents offer you while your application for life insurance is being completed. If you are expressing ambivalence as to whether your medical history would best require a “yes” or “no” answer to an application question, be cautious if an agent is guiding you toward answering in the negative.
As long as you answer “yes” to a question, your claim cannot be denied on the basis of misrepresenting a medical condition. You will most likely be given an opportunity to expand on, or provide an explanation for, any answer given, and it is there that you can qualify your “yes” answer.
It is advisable practice, if asked a question to which a “yes” or “no” answer is required, to answer “yes” if you have doubt, provide an expanded explanation, and allow the underwriters, as opposed to the agents, to assess the risk.
The Two Types of Misrepresentations in an Application for Life Insurance
There are two types of misrepresentations with respect to information on an application for life insurance. The first type includes any information that is not true, whether you intended to make a false representation or not, and the second type includes providing information that you know is false or intentionally withholding information that you know is relevant.
For the first two years after issuance of a life insurance policy, any misrepresentation can result in a full denial so long as the misrepresentation is material to the insurance company’s contemplation of risk. Even if the misrepresentation is not the reason that caused the death of the insured, if the misrepresentation was relevant to the insurance company’s assessment of risk, payment under the policy may be denied.
For example, if you answered “no” on a life insurance application to the question of whether you’ve ever had an issue with your heart, but the year prior you had been to your family doctor and complained of chest pains, the insurance company may invalidate the policy if you die within two years after issuance, even for a completely unrelated cause. The reason is because if you had disclosed that you had had chest pains, the insurance company may not have accepted the risk.
After two years, mistakenly providing inaccurate information will no longer invalidate the policy, and evidence of fraudulent misrepresentation is necessary, which means that the erroneous information was provided either deliberately or recklessly.
In addition to the challenge of providing accurate information, applications for life insurance also typically contain exclusions that may prevent the beneficiaries from collecting on the policy in certain circumstances. Common exclusions include accidental deaths, and engaging in high risk employment or activities. The effect of exclusions is that even if a policy has been approved, information was accurately presented in the application, and premiums paid, the insurance company may still refuse to pay under the policy money to your beneficiaries because of an applicable exclusion.
Your insurance agent will not necessarily identify policy exclusions to you during the application process, and you may discover them only after your application has been approved, you have paid your premium, and the policy has been delivered to you. It is important to ask your insurance agent what exclusions apply, and whether any would be relevant to the lifestyle you lead.
Personal injury lawyers become involved with beneficiaries whose ability to collect on a life insurance policy has become frustrated. To ensure that this is not the experience of your loved ones should they need to collect on your policy, it is best practice to: review your family doctor’s records to ensure that the information you provide on your application is fully accurate; answer “yes” to any questions regarding your medical history if you are in doubt; and, purchase life insurance when you are in a good state of health. To speak to a personal injury lawyer about your concerns, contact the personal injury lawyers in St Catharines from the premier law firm, Graves and Richard.