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Paying Premiums? Life Insurance Still Denied

Insurers Use Loopholes to Rescind Policies

Hundreds of millions of dollars in claims are denied each year. Those death benefits mean the loss of livelihood for the denied. This means that, not only do the surviving family members have to mourn the loss of a loved one, they must also try to cope with financial loss.

For all too many, not receiving the death benefit - known as rescission - costs them their home, their car, and even their children's educations.
What are the reasons insurance providers dispute life claims and rescind policies?

Reasons Insurers Dispute Claims

• Unpaid premiums
• Suicide
• The beneficiary committing “foul play” - such as bringing about the death
• Material misrepresentation

Material misrepresentation is the term for the failure to disclose certain bits of information that insurers believe are important to assessing risk. Examples include medical conditions (e.g., depression), hereditary risks (e.g., heart disease, cancer), and previous treatments or procedures (e.g., surgery, radiation therapy, shock treatment).

Material misrepresentation is the most common reason for rescission. It is not just intentional misrepresentation or fraud. You may just forget about something or not even realize you needed to disclose things like depression or a childhood concussion. Nevertheless, insurers often dispute claims for these reasons, even if they have no relation to the cause of death!

But don't they examine your medical history?

Yes, insurers, with your consent, do examine your medical history. They gather information from your doctors. However, consumer advocates warn that insurers often do not look very hard until you are dead - because they know they can rescind your policy.

There are limits, but....

“Limitless Rescissions” have been banned in most states. Many states, like California, have a 2-year rule. This rule states that after two years an insurer cannot rescind a policy for incomplete applications, including failing to disclose minor medical issues.

This 2-year period has been exploited by some insurance companies, consumer advocates warn. If you were to die within these two years, it is possible that they will leave no stone unturned in a search to find reason to dispute your beneficiary's claim. Some insurers have even been accused of ramming applications through, not even checking for accuracy and “completeness”, knowing that they have the first two years to coast.

If you are denied death benefit

You have to hire an attorney to sue for payment. Sometimes the insurer will offer to return the premiums or to pay a part of the covered amount. If you cash this check, you are giving away your right to sue.

Also, the challenge rate is very low. How many people have the money to hire an attorney and fight against company lawyers?

How to Ensure you are really Insured

First, check with a consumer advocate to see which life insurance companies have a history of rescission. American General is the most cited example of companies that abuse California's 2-year rule. Minnesota Life, on the other hand, has never disputed a life insurance claim.

The problem could also be solved, many industry experts and consumer advocates believe, if government banned rescission except in cases of fraud. This is the same as a new measure the US federal government passed for health care. In this system, life insurance companies would be much more careful reviewing applications and medical histories.

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