The Effects of Life Insurance Application Errors
Most life insurance claims are paid in full when the claim is received. However, a few life insurance beneficiaries have to fight with the insurance company to receive payment. The American Council of Life Insurers says that only 1 percent of claims fall into this category; however, these are the claims that life insurance claim lawyers see. One of the most common reasons for denial is a misstatement on the life insurance application.
Incorrect Information on Life Insurance Application: Mistake or Intentional Misstatement?
Life insurance applications can be long, tedious forms to complete. They may have several parts, some of which are completed by the applicant and some of which may be completed by medical care providers or others. Many times the insurance agent who is selling the policy completes the application. It is not surprising with the amount of information required and the number of people involved in completing the application that many contain errors.
Errors on applications include incorrect birth dates, misspelled names, incomplete or skipped answers, and omissions of illnesses, hospital stays and allergies. Many factors affect whether and how these errors affect claims payouts.
Was the Error Discovered Within Two Years After the Policy Was Issued?
Most insurance policies contain an incontestability clause that prevents insurance companies from challenging or denying life insurance claims based on errors occurring in or information provided during the initial application process. The clause provides for a two-year contestability period. After that period ends, the insurance company cannot contest the validity of the policy unless the policy was obtained through intentional fraud or material misstatement.
Is the Mistake a Material Error?
To result in a policy cancellation or a claim denial, an error must be material. This means that the error has to be important enough that it would have affected the insurer’s assessment of the applicant’s risk. If the correct answer would have resulted in denial of coverage, additional documentation or information, or a higher premium, then the mistake is a material error.
Can the Problem be Fixed?
Rather than cancelling a policy, insurance companies are often willing (or may be required by the state) to remedy an error and change the coverage or premium accordingly. So if the insured is actually a 50-year-old man and the policy was issued for a 40-year-old woman, the policy could be changed. Going forward, the insured would have to pay the higher premium that applies to an older male. In addition, the insured would have to pay the insurance company the difference between the premium paid so far and what the premium should have been had the insurance policy been issued correctly.
Was Misinformation Intentionally Provided?
If the policyholder intentionally lied, provided false information or omitted material information during the application process in order to get insurance coverage, the applicant committed fraud. Fraud usually voids the insurance policy. In addition, it may be punishable as a crime.
Life insurance claim attorney Chad G. Boonswang has helped many policyholders and life insurance beneficiaries remedy errors in life insurance applications. Call him today at 1-855-865-4335 to find out how he can help you.by