Chap 13

What are some barriers to a contest on the grounds of material misrepresentations within the contestable period?

1. An agent's knowledge of a misrepresentation can be imputed to the insurer. 2. The insurer delays in acting on its knowledge of a misrepresentation. 3. The insurer fails to inquire about ambiguous answers provided on the application for insurance. 4. The insurer does not provide the policy owner with a copy of the insurance application.

What are some Deductions from the basic death benefit

1. premiums due but unpaid during the grace period 2. policy loans 3. interest on any policy loans 4. accelerated death benefits that have been paid.

misrepresentation

An untrue statement of fact on an application

material misrepresentation

An untrue statement would affect the decision on the case

What are the two types of conditional premium receipts?

Approval premium receipts and insurability premium receipts

What are some common exclusions that can be included as riders in the policy contract?

Aviation, avocation and travel

Express waivers

Clear statements (oral or written) that a right is being given up

When Life insurance is paid in a lump sum, is this considered income to the bene?

Generally, life insurance death benefits that are paid out to a beneficiary in lump sum are not included as income to the recipient of the life insurance payout

What are the 5 Policy Provisions Applicable to Claims?

Misstatement of Age/Gender provision; Incontestability Provision; Suicide and other Exclusion Clauses; Amendments; Change in Health Statement

While most US insurers will accept either an original or certified copy of a death certificate, what is generally accepted in Canada in addition to above?

Most Canadian insurers will also accept a coroner's or a hospital's certificate of death as proof of death

Change in Health Statement

Most individual life insurance applications and premium receipts contain a change in health statement that requires a proposed insured to notify the insurer in writing if his health or any material information in the application changes before the policy is delivered. If the insured does not notify the insurer of a material change in health prior to the delivery of the policy, the insurer can deny a subsequent claim if the death occurs during the contestable period

Provide an advantage and disadvantage of initiating an interpleader

The advantage to the company is that they avoid the risk of having to pay proceeds more than once. The disadvantage is that it is a costly process for the company.

What happens with live rescissions?

The insurer would notify the policy owner that it has elected to rescind, give the reasons why, and would return all premiums paid plus any applicable interest. If the policy owner refuses to accept the premium refund, the insurer initiates an action in court for rescission of the contract.

When can an owner choose settlement options for the payment method?

The owner of the policy can choose a settlement option during the lifetime of the insured.

When is the payee not allowed to select their settlement option?

The payee can select a settlement option, unless the owner made the settlement option irrevocable

live rescission

When an insurer learns it has grounds to rescind during the insured's lifetime

When is the policy benefit considered in the estate of the insured?

While life insurance death benefits are generally excluded from income tax to the beneficiary, they are included as part of the estate of the deceased if the deceased was the owner of the policy at the time of death.

Claim fraud

an action by which a person intentionally uses false information in an unfair or unlawful attempt to collect benefits under an insurance policy

collusion

an agreement between two or more people to defraud another person of his rights

life income option

are paid over the payee's lifetime in periodic installments.

Who receives the death benefit if the Primary beneficiary Is disqualified from law from receiving the proceeds?

contingent beneficiary.

Implied waivers

created by words but rather through the conduct of the waiving party that clearly indicates that a right will not be enforced.

Waiver by silence

created when there is a duty to speak

What is one the first steps in determining a company's liability in a death claim?

determine whether the death occurred during the underwriting phase or after the policy was issued and put in force

Denial of a claim due to a specific exclusion or policy language (policy rider exclusion, suicide exclusion etc.) is called what?

enforcing the contract according to its terms.

An example of how a company may waive their rights?

for an insurance company to fail to act upon information it had when it originally underwrote the case can cause it to surrender the right or privilege to contest on that basis. If an insurer receives an incomplete application or one that contains unclear or conflicting information but fails to inquire about any of this information, courts will ordinarily rule that the insurance company has waived its right to deny benefits on the basis of the missing or ambiguous information.

fraudulent misrepresentation

misrepresentation that was made with the intent and result of inducing the other party to enter into a contract. Laws in most states contain an exception to the incontestability provision that permits the insurer to contest a policy at any time if the application contained a fraudulent misrepresentation

contract amendment

modification to the terms of a contract

If there was an owner change to the insurance policy, what timeframe must pass in order for the policy benefit to not be included in the insured's estate?

more than three years prior to the date of death

Unilateral Contract amendment

only signed by one party, the policy owner and/or insured

natural beneficiary

person such as a spouse or children

fixed-period option

proceeds are paid by the insurer in equal installments for a specified period of time

fixed-amount option

proceeds are paid in equal installments at a stated amount until the proceeds, including any accrued interest, are exhausted

Escheat

proceeds become the property of the state until the beneficiary is found and claims the proceeds or a common law when property of a person dies without heirs is transferred to the crown or state

interpleader

process that allows for the company to pay the policy proceeds to a court and ask the court to determine the proper recipient

insurability premium receipt

provides temporary coverage on condition that the insurer finds that the proposed insured was insurable as a standard risk on a certain date specified in the premium receipt. Typically this is the date of the receipt, application, or medical examination. Should the proposed insured die before the application is approved, the insurer completes the underwriting process as if the proposed insured were still alive. If the underwriter determines that the proposed insured was insurable at the time specified in the receipt, then a death benefit is payable

interest option

the insurer invests the proceeds and periodically pays interest on the proceeds

What are some additions to the basic death benefit?

1. paid-up additional insurance 2. accidental death benefits 3. excess premium paid in advance 4. policy dividends declared but not yet paid 5. interest on delayed claims payment 6. loan interest paid in advance.

What are some Red flags for suspecting fraud and/or material misrepresentation

1. requesting an amount of coverage slightly less than the amount of coverage that would require the proposed insured to undergo a physical examination and/or other specific underwriting requirements 2. discrepancies between the applicant's signature on the application and other documents, such as the examination form 3. answers to questions on the application that appear to have been altered 4. signs of speculation, such as a proposed insured requesting an unusually large amount of coverage based on his income or an amount that is inconsistent with the potential financial loss.

What conditions are generally specified with a TIA?

1. that the coverage is temporary 2. when the coverage becomes effective 3. the conditions that must be met for the coverage to become effective 4. any limitations, such as amount limitations (often the receipts limit the amount available to a specific dollar amount that can be less than the amount applied for) 5. when the coverage will end.

What's included in policy proceeds (payout)

1. the basic death benefit 2. any additions to the basic death benefit 3. any deductions to the basic death benefit

If an insurer wants to deny a claim within the contestable period for undisclosed change in health, what would they need to show?

1. the change in health directly affected the degree of risk for the case 2. the proposed insured knew of the change in health 3. the change in health statement was unambiguous.

What is the most common reason that insurers deny payment of death benefits?

Material misrepresentation

Suicide Exclusion

a provision that is part of the basic policy. Its purpose is to protect the company against anti-selection when a proposed insured applies for the policy with suicide in mind. In most jurisdictions, the specified period is two years following the date the policy is issued. If the policy lapses and is reinstated, the period is still considered to have begun on the date when the original policy was issued.

Estoppel

an equity principle applied to life insurance contract law. If by your actions, words, or silence, another person has relied on or taken action that he would not have otherwise taken, to his detriment, your defense is waived and you are prohibited ("estopped") from later defending, denying, or rescinding your original course of action.

Who are parties to the settlement agreement?

beneficiary and insurer

during the lifetime of the insured

phrase makes the policy contestable forever if the individual dies during the stated contestable period. It does not matter when the claim is submitted to the insurer. A delay by the claimant to after the contestable period will not affect the insurer's ability to investigate.

Temporary Insurance Agreement

provides temporary insurance on the proposed insured should a death occur before the policy is issued and delivered

binding premium receipt

provides temporary insurance coverage that becomes effective from the time the applicant receives the receipt and generally remains in effect until the earliest of the following occurrences: 1. The insurer issues the applicant a policy. 2. The insurer declines the application. 3. The insurer terminates or suspends the coverage under the receipt. 4. After a specified length of time, usually 45 to 60 days, expires.

Policy reformation

refers to the practice of making a change to the policy contract, terms, or benefits, due to information previously unknown at policy issue that has a meaningful impact to the policy.

Because the agent acts on behalf of the insurer, knowledge of the agent is considered to be knowledge of the insurer. Under what circumstance is this NOT true?

the agent's knowledge is not imputed to the insurer when collusion is involved

In Canada, what date starts the Suicide Exclusion clause?

the exclusion period typically begins again on the date the policy is reinstated

In the U.S., what happens if a policy is rescinded?

the parties are returned to the positions they would have been in had no contract ever been created. Thus, rescission obligates the insurer to return the premiums paid for the policy

In Canada, what is the process if the incorrect beneficiary is paid the death benefit?

the payees must notify the company in writing of their right to receive policy proceeds. If the insurer pays the proceeds to a person who appears entitled to them, the insurer is fully discharged of all liability for payment of proceeds. An individual later claiming he is entitled to the proceeds would have to seek to recover them from the person who received them.

non-natural beneficiaries

trust, company, or estate

What 3 factors are typically used to determine if information supplied constitutes as material misrepresentations?

1. charged an increased premium for the added risk 2. excluded coverage for the added risk 3. reduced the amount of coverage 4. declined to issue a policy.

Incontestability Provision

Included in ALL policies. This provision describes the time limit within which an insurer has the right to void the contract on the grounds of material misrepresentation in the application. The stated period under which the insurer has the right to avoid the contract and deny the claim is the contestable period. Typically it is two years from the date the policy is issued. In Canada and some U.S. states, the insurer can still contest the validity of the contract after the contestable period if the misrepresentation was fraudulent.

What must be included in a claim denial letter?

Many states require this letter to include information on how to appeal the denial, as well as information on how the claimant might refute information. Typically the letter will also state that the insurer will consider any such further information in reexamining the claim

In the U.S., what happens with an unexplainable disappearance where the a death claim is filed?

The insurer cannot approve a claim until it receives sufficient proof of the insured's death. In the U.S. often a number of years must pass (usually five to seven depending on the jurisdiction) before an individual can be legally presumed dead. The claimant would then petition for a court order presuming the insured's death.2

Explain the contestability period on reinstatements

anything stated in the original application, the contestable period remains the same as the original period provided by the policy. However, for a reinstatement, any answers given on the reinstatement application that are deemed to have been misrepresentations allow the insurer to contest for generally two years following the effective date of the reinstatement.

What is the most common reason a person will be legally disqualified from receiving the death benefit?

if he intentionally brought about the death of the insured. Further, if it can be shown that the policy was taken out with the intent of causing the insured's death, then the contract is considered void from its inception and the insurer is required only to return premiums paid with interest, less any applicable deductions. Should there be an ongoing investigation of the death, the insurer has the option to deposit the proceeds with the court for disbursement after a legal decision has been made.

approval premium receipt

provides temporary insurance coverage only when the insurer approves the proposed insured as a standard or better-than average risk. If the proposed insured dies before the application is approved, the receipt provides no coverage. These are rarely used by U.S. insurers

Rescission

remedy provided by law to an insurer that discovers that it has issued a policy based on material misrepresentation. If the contract is rescinded, it is void from its inception.

Conditional premium receipts

specify certain conditions that must be met before the temporary insurance coverage provided by the receipt becomes effective.

Waiver

the act of intentionally or knowingly relinquishing or abandoning a known right, claim, or privilege, either expressed or implied

If a claim is denied d/t suicide, who does the burden of proof lie with?

the burden of proof is upon the insurer to show that the insured committed suicide. Most jurisdictions have a legal presumption that the insured did not commit suicide and the insurer must overcome this presumption. Also, coroners may be hesitant to, or will not, rule a death a suicide without an actual suicide note.

claim philosophy

typically a statement, developed by senior management, outlining principles and objectives for administering claims. Generally, all claims departments focus on being prompt in their processing of claims, accurate and professional in their handling, consistently applying the policy provisions, and investigating any potentially questionable or contestable claims.

Accidental death benefit (ADB)

usually a supplemental rider purchased with the policy. It provides for a death benefit in addition to the basic death benefit should the insured die as the result of an accident. ADB riders can have limitations, such as expiration when the insured reaches certain ages, commonly 65 or 70. The additional benefit would be payable if the insured's death was caused, directly and independently of all other causes, by an accidental bodily injury.

List the first four steps the claims analyst will usually begin

1. Determine the date coverage was issued, which includes a review of the policy and company records to determine when the application was written and when it was issued. 2. Verify the coverage was in force when the loss occurred by checking the company's administrative system to verify the initial premium was paid and the policy put in force. Or, if the policy is not in force, determine if there's coverage in force under the provisions of a temporary agreement 3. Check to see if the premiums are paid up to date. If not, check to determine if the policy is in the grace period, in a lapsed status, or currently being considered for reinstatement. 4. Determine if the policy is contestable.

What must an insurer know to prove that a material misrepresentation has taken place

1. The applicant or proposed insured failed to disclose or misrepresented a fact. 2. The fact was within the person's knowledge at the time the misrepresentation was made. 3. The fact was material, or relevant, to the insurer's acceptance of the risk.

Examples of material misrepresentations

1. health - failure to disclose a known medical impairment 2. occupation or avocation - failure to disclose a dangerous job or hobby 3. habits - failure to disclose past abuse of alcohol or controlled substances 4. traffic violations - misstatements of the number and/or severity of moving violations or collisions 5. other insurance applications denied or rated - concealing information about insurance applications that have been denied, assigned a high-risk class, or charged an additional premium.

In Canada, what happens if a policy is rescinded?

whether the insurer repays the premiums depends on the terms of the contract

While the Accidental Death Benefit focuses on death and its cause, what's the focus for Waiver of Premium and Accelerated Death Benefit?

whether the standards required for the exercise of the policy rider have been met

What happens when an insurer determines it has grounds for rescission after the death of the PI?

it denies payment of the policy proceeds and returns all premiums paid plus interest less withdrawals.

What is the role of the UW involved with contestable claims evaluation?

review the original file information and compare it to any newly developed information, looking for any potential material misrepresentation or fraud. They will then render an opinion as to what decision would have been made had they known the new facts at the time they originally underwrote the case.

Accelerated death benefit

can be a separate rider, or with some insurers is part of the basic policy. Certain terms must be met by determining if the insured meets the insurer's definition of having a terminal illness, dread disease, or condition requiring long term care. The proceeds are paid to the policy owner-insured and are later deducted from the basic policy's death benefit. Because of this, if the beneficiary is irrevocable or is an assignee, the beneficiary or the assignee can be required to sign a release acknowledging the reduction in face amount by the payment being made.

Misstatement of Age/Gender provision

found in MOST life insurance policies Generally, if the insurer does not discover the misstatement until after the death, the amount payable is adjusted to the amount the premiums paid would have purchased at the correct age or sex according to the company premium rates at the time of issue. If the misstatement is found before the death, however, the insurer will generally give the insured the option to pay any premium adjustment rather than adjust the policy's face amount. Should the misstatement mean the insured has overpaid, he will be given a refund.

How Is the legal department involved in the Claims process?

source for legal advice as a claim is reviewed, especially if there is a determination of possible material misrepresentation and/or fraud. If a claim is denied and that denial is later disputed, the legal department would either represent the company or supervise outside attorneys in any litigation, arbitration, or settlement involving the company. It also aids in the development and/or review of any policy forms, agency contracts, business contracts, and any other legal documents used by the company.2

Waiver of premium (WP)

supplemental rider that is generally purchased along with the policy. It specifies that if the insured becomes totally disabled, the insurer will give up, or waive, its right to collect premiums that become due while the insured is totally disabled