According to a recent Times report, the amount of money life insurance companies withheld from beneficiaries more than doubled over the last ten years. The Times analysed data compiled by the National Association of Insurance Commissioners, for this conclusion. Last year alone more than 5,000 life policy holders were denied their claims – and the main reason cited was ‘flawed applications’.
Life insurance companies do pay the majority of claims, and paid out $38 billion pounds on individual life policy death benefits last year, but a recent case involving American General has shown that Life Insurers are not always playing fair when it comes to refusing to pay out.
American Life Cancelled Life Policy and Withheld Monies from ‘Exemplary’ Life Policy Holders
Sheila Weissberger became a widow in 2005, after her husband Ian died of Lou Gehrig’s disease. American Life was the Weissbergers’ life insurer and – according to their advertizing -the protector of ‘the hopes and dreams of American families’. Upon the death of Mr Weissberger, they cancelled Mr Weissburger’s life policy and much to her astonishment refused to pay Mrs Weissberger the expected $250,000 payout.
American life confirmed the premiums were fully paid up, no fraud was suspected and nobody could doubt that Sheila Weissberger was the rightful sole beneficiary – plus, Mr Weissberger’s illness was not diagnosed for several months after taking out the life policy. In fact it might seem as if the Weissbergers were exemplary life policy holders.
Refused Payout to Widow on basis Life Application was ‘Incomplete’
The reason for this decision was, according to American Life, that the life policy application was in their opinion incomplete. They stated that Mr Weissberger had failed to declare on the form that he had a bipolar disorder and pulmonary disease – conditions he did not actually have, according to his doctors.
Due to their decision Mrs Weissberger, 62, said “I lost my house. I lost everything” “It was very, very devastating”. American General has now reached a confidential financial settlement with Mrs Weissberger, but she will not likely to ever forget this period in her life.
Most Common Reason for Withholding Payouts is ‘Flawed Applications’
Life insurers can refuse to payout on policies for legitimate reasons such as foul play, unpaid premiums and suicide, but the most common reason for disputing claims is ‘material misrepresentation’. This means failure to disclose information deemed important when assessing risk – this clause can allow life insurance companies to totally rescind live cover.
The majority of American states have banned limitless rescissions in order to stop life insurers abusing the system, but Californian and other areas, life insurance companies can rescind life policies in the two years following the signing of a policy.
Source: Latimes.com November 2010
photo credit: StuartWebster, tibchris