The Insurable Interest Doctrine and Its Effect on Your Life Insurance Claim

It may seem surprising that life insurance claims are commonly denied, and for many different reasons.  Life insurance companies reportedly refuse payment on approximately 5,000 policies each year, although we believe this figure is much higher.  One interesting reason that life insurance claims can be denied involves the lack of an insurable interest.  According to the insurable interest doctrine, in most states an individual cannot take an insurance policy out on the life of another person without having a legally-recognized insurable interest in that person’s life.  In other words, one cannot insure the life of another unless he or she derives some benefit or advantage from the continuance of the insured’s life.  The law does not want to encourage the practice of “wagering” on the life of another.  Allowing an individual to procure a policy on someone’s life without requiring the existence of an insurable interest may open the door to crimes being committed against the insured person.

The rules setting forth what constitutes a sufficient relationship differ amongst the states.  Generally, states consider the insurable interest requirement to be satisfied by blood ties or other affection-based relationships.  In many states, a monetary tie such as a business partnership is sufficient to create an insurable interest.  The line drawn by the various state statutes remains fuzzy, to say the least.  The majority of courts have found that determining whether a relationship gives rise to a sufficient insurable interest is a fact issue, meaning it is determinable on a case-by-case basis.

Whether an insurable interest exists is relatively easy to determine in some relationships.  For example, a husband and wife will almost always be found to have an insurable interest in each other’s lives.  But what about an unmarried couple?  Or grandparents and grandchildren?  Even the relationship between parent and child is treated differently depending on the state where the policy is issued.  For example, Illinois courts have found that the blood tie alone can be insufficient and have, in some cases, required a showing of monetary interest in order to bolster the insurable interest.  In New York and Pennsylvania, on the other hand, the parent-child relationship alone establishes an insurable interest sufficient to take out a life policy.

To further complicate the insurable interest doctrine, courts have held that expiration of the contestable period for life insurance policies does not defeat a claim denial for lack of an insurable interest.  Typically, insurance companies have a 2-year period to challenge the validity of a policy.  The vast majority of jurisdictions have held, however, that a lack of insurable interest can be raised to challenge a policy’s validity at any time, even after the contestable period has passed.  In New York, an outlier state, life insurance companies cannot refuse payment on such a basis unless the challenge was raised within the contestable period, which begins to run on the policy’s date of issue.

The lack of uniformity with respect to what constitutes an insurable interest can cause a great deal of confusion for beneficiaries.  Without the assistance of an experienced life insurance attorney, a proper beneficiary may lose the right to collect against a policy based on an insurance company’s arbitrary determination that a sufficient insurable interest does not exist.  If your life insurance claim has been delayed or denied, you should speak to a life insurance lawyer about the facts specific to your case immediately.

Heather D. Lee, Esquire Wins Reinstatement Of Policy When Life Insurance Company Failed To Give Notice Of Payment Lapse

Insurance companies must generally notify an insured when a policy is at risk of lapsing due to nonpayment.  Such notification may be required by statute, as a term in the insurance contract, or by customary practice.  Policies commonly provide for a grace period of thirty-one (31) days, which allows an insured to avoid cancellation of insurance coverage if premiums are paid within the specified time-frame.  This is especially important with respect to life insurance policies because coverage is based on the applicant’s health at the time the policy becomes active.  In other words, if a life insurance contract lapses after the grace-period expires, reinstatement is subject to the same medical underwriting requirements as an application for a new policy.

Consider the following example: Larger-Than-Life Insurance Company (LTL) issues a life insurance policy to Youthful Yolanda, who faithfully pays her premiums for 15 years by monthly automatic withdrawals from her bank account.  Last month, though, Yolanda’s premium payment was returned due to insufficient funds in her account, triggering a 31-day grace period.  Despite LTL’s customary practice of notifying insureds when automatic premium withdrawals are returned, it fails to notify Yolanda that her policy will soon lapse. Unfortunately, Yolanda did not realize the payment was returned, resulting in the cancellation of her life insurance policy.  Since Yolanda is not so youthful anymore, and her health has changed over the past 15 years, she is no longer eligible for a new life insurance policy.  Even though LTL is entitled to keep all of her previous payments, Yolanda no longer has coverage and LTL refuses to reinstate her lapsed policy.

This is a fairly common story, with variations.  Sometimes insurance companies mail the appropriate notification too late, or to an incorrect mailing address because it has failed to process an address-change request.  Just this month, the Life & Property Insurance Law Offices of Heather D. Lee, Esquire successfully fought for reinstatement of a life insurance policy that lapsed when a major insurance company mailed notification of an overdue premium payment after the grace period had already expired.  Even a timely mailing may not contain the proper information to provide sufficient notice, such as the amount due or the date a policy will terminate.

If your life insurance policy has lapsed for nonpayment, or if you are a beneficiary whose claim has been denied because a policy lapsed prior to the insured’s death, you should speak to an experienced life insurance lawyer about your rights.  Heather D. Lee, Esquire offers free consultations on all life and property insurance cases.

Feds Immune from Federal Employees’ Group Life Insurance Act (FEGLIA) Lawsuit for Loss of Beneficiary Designations

In Graber v. Metropolitan Life Insurance Company, a lawsuit against the United States and Metropolitan Life Insurance Company to obtain the life insurance benefits of a deceased federal employee, a U.S. District Court in Ohio ruled yesterday that the federal government has sovereign immunity for the improper maintenance of life insurance beneficiary designation forms.  The dispute arose when Metropolitan Life Insurance Company denied a life insurance claim filed by the insured’s surviving spouse and subsequently issued payment of the benefits to the insured’s brother.  Met Life based its decision on the insured’s incomplete personnel file, which contained a form designating the brother as sole beneficiary in 1996 but lacked any record of the insured’s request in 2008 to change the beneficiary to her husband.

Under the Federal Employees’ Group Life Insurance Act, the United States has waived sovereign immunity for any “breach of legal duty owed.”  Although the federal government was responsible for maintaining the insured’s personnel file, the District Court’s holding that no duty exists to properly maintain FEGLI records precludes recovery, as the federal government has not unequivocally consented to be sued for the loss, misfiling, or misplacing of beneficiary designation forms.

Sound like a bunch of nonsensical legal mumbo jumbo?  Well, that’s debatable… even federal courts are somewhat split on the issue.  Prior to the Graber decision, the Fifth Circuit concluded in Metropolitan Life v. Atkins that the federal government does have the duty to properly maintain beneficiary designation forms in the care of its FEGLI personnel clerks.  Yet, other federal courts limit the United States’ duty under the Act to only negotiating and issuing the correct FEGLI life insurance policy.

The lesson to be taken away from this discussion is two-fold.  First, if you are a federal employee with group life insurance benefits, follow-up on any beneficiary designations to ensure that your personnel file accurately reflects your intentions.  And most importantly, always consult with a life insurance lawyer about your denied life insurance claim or beneficiary dispute.  Until the Supreme Court picks a side, every “designated” beneficiary deserves to make their case.

The full court opinions referenced in this post can be found here —–> Graber v. Metropolitan Life ; Metropolitan Life v. Atkins .

For additional information on how a life insurance lawyer can help you, visit www.life-insurancelawyer.com and www.life-insurance-law-firm.com or Contact Us at (800)403-5710 to speak with an attorney about your case now.

$50,000 Life Insurance Policy… for FREE?

In 2002, Massachusetts Life Insurance Company implemented a $50,000 free life insurance program (yes, free!) for the educational benefit of children in low-income families.  The program is nation-wide and will be offered to a total of 20,000 families, equaling $1 billion in life insurance proceeds.  To qualify for a 10-year term life insurance policy through the MassMutual LifeBridge program, a parent or legal guardian of one or more dependent children must be in good health, as determined by Massachusetts Life, and have a household income of no more than $40,000.  In the event of the insured parent’s or legal guardian’s death, MassMutual will pay the $50,000 proceeds to an educational trust, which can then be used to cover pre-school, private school, trade school, community college, and/or university expenses such as tuition, housing, books, and other educational expenses.  All proceeds are paid directly to the educational institution as covered expenses accrue, ensuring that the $50,000 is only used for its intended purpose.

Now, I know what you are thinking.  Or at least I know what I was thinking when I discovered this almost-too-good-to-be-true free life insurance program: ‘If MassMutual instituted the LifeBridge program in 2002, why am I only now hearing about it in 2011!?’  It is possible that Massachusetts Life has failed to promote the LifeBridge free life insurance program in ways calculated to reach eligible applicants in low-income communities. Only about 12,000 LifeBridge policies have been issued in the nearly 10 years since MassMutual launched the program, just over one-half of the $1 billion commitment.  Maybe corporate responsibility only mandates that MassMutual implement the LifeBridge program and receive credit for its altruism without making the families and children meant to benefit from the program actually aware of its existence.  All skepticism aside, though, the LifeBridge free life insurance program has secured and undoubtedly will continue to secure educational opportunities for many children in low-income families.

Is there a catch?  Not necessarily.  But there are some conditions and exclusions.  In addition to the requirements that the parent or legal guardian be in good health and have a household income of between $10,000-$40,000, the applicant for free life insurance must be between the ages of 19-42.  This means a grandparent with legal guardianship may apply, but only a very young grandparent.  The age requirement also excludes an 18-year-old parent, even though an 18-year-old child does not qualify as an eligible beneficiary.  Also, the parent or legal guardian must be a permanent, legal resident of the United States and employed full or part-time at the time of application.

An insured’s cause of death will not affect the payment of proceeds, except that suicide-related deaths occurring within two years of the policy’s effective date are not covered.  Parents or legal guardians who have been diagnosed with cancer, heart disease, Type 1 Diabetes, and/or HIV are specifically excluded from coverage, as well as any applicant who has abused alcohol or drugs within 10 years of the application date or is on probation at the time of application.  Finally, the $50,000 free life insurance policy is available only to one parent or legal guardian per household, so an eligible parent or legal guardian with three, four, five, or more children will have to spread the proceeds fairly thin or decide which child is most in need of a quality education.

If Massachusetts Life determines that a parent or legal guardian is eligible to apply for the LifeBridge program, the company assigns a MassMutual representative to verify the applicant’s identification, employment status, income, residency, children’s ages, and also to administer a blood and urine test and a brief medical exam.  Once accepted into the LifeBridge program, the insured’s children will be entitled to the educational benefit upon death of the parent or legal guardian during the 10-year policy term, and until the later of 35 years-of-age or 10 years after the insured’s date of death.  Do you think you are eligible to apply?  Then apply today!  Additional information and an eligibility form can be found here:

MassMutual LifeBridge Program Documents

And tell your friends!  Because in the words of Massachusetts Life Insurance Company: “All children, including yours, are the future of our country.  And the more educated our future leaders are, the better prepared they will be to help meet the challenges of tomorrow.” The Life & Property Insurance Law Bloggers agree.

Protecting Your Rights & Your Family

The Life & Property Insurance Law Offices of Heather D. Lee, Esquire assist insured persons and their beneficiaries on delayed and denied life insurance claims, homeowners and renters insurance disputes, and other contract and consumer protection matters.  Our mission is to protect your rights and your family by ensuring that powerful insurance companies fulfill their legal and contractual obligations to you.

While the Life Insurance Law Bloggers are primarily focused on life and property insurance matters, it is our priority to provide helpful information regarding many areas of civil claims and consumer law.  The information on this site may not apply to your state, as insurance laws vary from state-to-state.  The Life & Property Insurance Law Offices of Heather D. Lee, Esquire are located in New York, Pennsylvania, and Colorado.  The information on the Life & Property Insurance Lawyer Blog is NOT and should NOT be construed as legal advice.  The information contained in this website does not create an attorney-client relationship between any person who reads such information and Heather D. Lee, Esquire and/or the Life & Property Insurance Law Bloggers.

For your free case evaluation, Contact Us to speak with an experienced life and property insurance attorney about the details of your claim today.