if the intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.
In short, the plaintiff must go beyond a mere showing of nonpayment and prove a bad faith nonpayment-a nonpayment without any reasonable ground for dispute.
Beneficiary
A policy may include the following clause:
The beneficiary choice in the application will stay in effect unless changed by the Owner. If there is no beneficiary living or chosen, the proceeds will be paid to the Owner or his estate;
A beneficiary is the person or institution that receives the proceeds of an insurance policy when the insured person dies.
The beneficiary can be the owner of the policy, a third party or just about anyone-except the insured person. A beneficiary designation stays in effect unless changed by the owner.
Policy proceeds will be paid to the owrier or the owner's estate if there is no living beneficiary at the time of an insured person's death. .
Contract
A policy may include the following clause:
This insurance is granted in consideration of the application and payment of the scheduled premiums. This policy and the application attached at issue are the entire contract. All statements made in the application are deemed representations and not warranties.
No statement shall void the policy or be used to defend a claim unless it is contained in the application.
The policy and attached application are the entire contract. Statements made in the application are now treated as representations rather than warranties. Under the law; a warranty carries more weight than a representation, and any breach of warranty (whether or not material) could void the insurance policy.
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To the extent that the insurance company may cha11engethe policy or deny a claim during the first two years of coverage, it may do so only if a misrepresentation is material and is contained in the application.
Free Look
In most states, no life insurance policy can legally be issued unless it has printed on or attached to it a notice stating that, during a period of 10 days (some companies
allow 20 days) from the date the policy is delivered to the policyholder, it may be surrendered to the insurance company together with a written request for cancellation of the policy. In such an event, the policy shall be void from the beginning and the insurer shall refund any premium paid.
This provision allows the policyholder an opportunity to review the entire contract and reevaluate the purchase decision.
Grace Period
A policy may include the following clause:
If a premium is not paid on or before the due date, it is in default. There is a grace period of 31 days from the due date. During this period, the policy will remain in force. After that, if your premium is unpaid this policy will expire....
Technically, all premiums are due on the due date. The policy provides a grace period of 31 days for late payments.
This does not extend the due date (the premium is still in default), but it keeps the policy in force until the end of the grace period. If the premium remains unpaid at the end of a grace period, the policy will expire or lapse.
If an insured person dies during the grace period while a premium is late, one month's premium will be subtracted from the proceeds.
Incontestability
A policy may include the following clause:
This policy may not be challenged after it has been in force during your life for 2 years from the Date of Issue except for failure to pay premiums. This provision does not apply to added benefits for disability or accidental death.
Two years is a reasonable amount of time for the insurance company to discover any misstatements, ,errors or omissions made in the application.
Insuring Clause
The insuring clause states that in consideration of the payment of premiums, the company agrees to pay the face amount to the named beneficiary, upon due proof of death of the insured, or to pay certain benefits if the insured lives to some specified age, such as 65.
Intentionality
If the death of an insured person results from intentional behavior, an insurance company doesn't have to pay any accidental death benefit. The 1994 California Supreme Court decision Lola "Weil et al., v. Federal Kemper Life Assurance Co.
dealt with several important issues. Chief among these: the application of an intentionality exclusion and the difference;.
between the concepts accidental means and accidental death.
In April 1975, Federal Kemper issued. a life insurance policy which named Michael Weil as the insured. It was a term policy, renewable to age sixty-five. Its face amount was $100,000 and it provided a supplementary rider offering an accidental death benefit in the same amount-the traditional double indemnity clause.
Michael Weil died in August 1985 in a hotel room in San Francisco. He was 32 years old. A female prostitute said that she watched him ingest cocaine for nearly an hour from a
dish in the bathroom. A short time later, he suffered shortness of breath and collapsed. Attempts by paramedics to revive him proved to be unsuccessful. A subsequent medical examination found that Michael had died of "acute cocaine poisoning."
Federal Kemper paid the $100,000 basic benefit provided in the policy to Lola and Michelle Weil-Michael's beneficiaries. The company denied their claim for the additional $100,000 accidental death benefit, on the grounds that Michael's death did not occur solely by accidental means within the meaning of the policy.
Lola and Michelle Weil sued Federal Kemper. They argued that, even if the cause had been acute cocaine poisoning from intentional ingestion of cocaine, MichaeYs death occurred by accidental means within the meaning of the policy-because he had not intended to kill himself The trial court sided with the Weils. It ordered Federal Kemper to pay the additional accident benefit of $100,000.
Federal Kemper appealed, arguing that the trial court had misinterpreted the phrase accidental means. While Michael Weil had suffered an accidental death, the insurance company argued, the death hadn't occurred because of accidental means.
The state Supreme Court noted that, in states that had repudiated the distinction between accidental means and accidental death, insurance companies were frequently held liable for unintentional drug overdoses.
In the Weils' case, the court stuck to the language of the policy, which took pains to use the phrase accidental means.
In order to collect the additional money, the Weils bore the burden of establishing that Michael's death was caused by an accident unrelated to his intentional ingestion of cocaine. Since they hadn't done that, the court reversed the award of the second $100,000.
Medical Examinations and Autopsies
Some states require life insurance policies to include a provision that gives the insurer the right and opportunity at its own expense to conduct a medical examination of the insured person as often as reasonably required when a claim is pending and to perform an autopsy where not forbidden by law;
Misstatement of Age or Sex
A policy may include the following clause:
If your age or sex has been misstated, any amount payable shall be such as the premium paid would have purchased at the correct age or sex.
Example: Cindy, age 37, applies for whole life insurance.
By mistake, her age is recorded as 35 on the application. The policy is issued and the premium is based on age 35 rates.
Forty years later, Cindy dies and the misstated age is then discovered. Cindy has paid a premium which was lower than it should have been. The death benefit will be decreased slightly to reflect the amount of insurance which should have been purchased (with the premium that was paid) had her correct age been stated.
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Du~to gellder differences in life expectancy, mal~s usually pay.more f(i)r life .IDsw-ance than females (~hp Iry;e
If the mistake is found while the insured is alive, an adjustment in the premium will be made. The premium adjustment will usually include a new; higher premium and a request for additional premium to take care of the amount which should have been paid in the past.
Modification
A policy may include the following clause:
No person except the President, a Vice President, the Secretary or an Assistant Secretary can modify this contract on our behalf No agent may bind the Company by making a promise not contained in this contract.
Modifications or changes in the policy, or any agreement in connection with the policy (such as changes in the beneficiaries, face amount, or additional coverage), must be endorsed on or attached to the policy in writing over the signature of a specified officer or officers of the company. No one else has any authority to make changes or agreements, to waive provisions, or to extend the time for premium payment.
Some modification clauses go further and specifically state that no agent has the right to waive policy provisions, make alterations or agreements, or extend the time for payments of premiums:
Owner
The owner of a policy is the person who makes the contract with the insurance company. The owner has various rights and obligations (such as designating a beneficiary and making premium payments).
Parties
When a life insurance policy is issued, a number of parties may be involved with respect to contractual
obligations and benefits. Obviously, the insurance company is a party to the contract. In exchange for the premium payment, it has agreed to pay certain benefits if the insured dies. Since the insurance will pay a benefit if the insured dies, it is also obvious that the person insured is a party to the contract. But there may be other parties.
To identify other interested parties, you need to consider who owns the policy, whose life is insured, and who is entitled to the benefits. In the life insurance business, these parties may differ depending upon how the policy is issued and what rights are exercised.
Premium Payment
A policy may include the following clause:
Each premium is payable on or before the due date. The first premium is due on the Policy Date. Upon request we will send a signed receipt. . . . Premiums may be paid once per year, twice per year, or once per quarter. The Owner may change the mode of payments if we approve.
life insurance does not take effect until the first premium is paid, so the first premium is due on the policy date. Future premiums are due on or before each due date.
Proceeds
Proceeds are any moneys payable as a death benefit. If a policy has an original face amount of $100,000 and dividends have been used to buy $ 5,000 of additional insurance, then the proceeds equal $105,000 at that point in time. On the other hand, if the policy owner has borrowed $ 50,000 against the policy, the proceeds would be only $55,000.
Policy Change Provision (Conversion -Option)
The policy may contain a provision which permits the insured to exchange a policy for another type of policy form permitted by the company. This exchange is usually made from one policy type to another policy form with the same face amount.
If the exchange is to a policy form with a lower premium, then proof of insurability may be required (this usually means another medical exam), as the exchange could result in adverse selection against the insurance company.
Example: If Charlie discovers that he only has six months to live, then he might decide to exchange his higher premium whole life policy for one-year term insurance with the same face amount. The insurance company's risk has increased while its premium income has decreased. Thus, Charlie will have to prove insurability.
Policy Date and Due Date
The policy date is usually the original effective date. It is treated as an anniversary date and used to determine premium due dates and other dates.
Example: Your policy takes effect on May 8 of the current
year, and that is the policy date. May 8 will be the anniversary date for the policy. If premiums are payable annually, they will be due on May 8th of each year. If premiums are payable monthly, they will be due on the 8th of each month.
The due date is tipically the date on which all premium payments, after the first payment, become due.
Reinstatement
premium has not been paid by the end of the grace period, this provision allows the policy owner to apply for reinstatement within a specified period of time following the policy's lapse. In most states, this period of time is at least three years. Some states or companies allow up to five years.
The insurer has the right to decline the request for reinstatement if, for example, the insured person is unable to provide satisfactory evidence of continued insurability. Any statements made on the reinstatement application are subject to a new incontestable period (usually two years).
There are several reasons for considering reinstatement.
These include:
- the lapsed policy may have more liberal policy provisions
- the older policy may offer lower interest rates on policy loans
- suicide and incontestable clauses probably will no longer apply if the policy is three years old or older
- the lapsed policy probably has a lower premium than a new policy
This last point is especially true if you purchased the lapsed policy 10 or 15 years earlier. Instead of paying attained age rates for a new policy, you may be able to reinstate the lapsed policy at original issue age rates.
Normally, the reinstatement request wilfbe approved. However, if the policy has not been in force for some time, you may find it better to purcnaseil new policy rather than pay back premiums plus interest to reinstate the lapsed policy.
Renewal
The policy schedule for annual renewable term insurance will show a policy date (original effective date) and an expiry date ( expiration date), plus renewal premiums for the insured person's attained age up to age 69.
The policy may be renewed for another year on any expiration date before the anniversary date nearest an insured's seventieth birthday, without a medical exam or evidence of good health, simply by ~aying the I. If the policy owner does not renewal premmm. pay a renewal premium! the
Example: If the policy I policy will expire.
has an anniversary date of .
June 1 and your birthday is August 1, it may not be renewed after your sixty-ninth birthday. On the next policy date, your nearest birthday will be your seventieth, which will be treated as your attained age for policy purposes (although coverage actually ends at age 69 and 10 months).
Suicide
A policy may include the following clause:
If you die by suicide, within 2 years from the Date of Issue your insurance shall be limited to the amount of premiums paid. This applies whether you are sane or insane at the time of suicide.
Nearly all life insurance policies have a suicide limitation. If an insured person commits suicide within the first two years after the effective date, the insurance company is only obligated to return the premiums paid. After two years, it is assumed that a person did not buy insurance with the intent of committing suicide, and death by suicide is covered.
Uniform Simultaneous Death Act
A problem arises when the insured person and the primary beneficiary die simultaneously. Many states have adopted the Uniform Simultaneous Death Act. Under this law; if there is no evidence as to who died first, the policy will be settled as though the insured survived the beneficiary.
Accordingly; the life insurance proceeds would be paid to the estate of the insured, not the estate of the beneficiary.
Of course, if contingent beneficiaries are designated, the proceeds would be payable to them. Or if there is clear evidence that the beneficiary survived the insured, then the proceeds are payable to the beneficiary's estate.
