If an insured person dies during the contestability period (usually two years from the time the policy is issued), the insurance company investigates the application, to be certain the insured person did not lie or issue false statements when applying for life insurance. Some insurance companies, however, have been accused of denying benefits after death because of misstatements on the application even though those misstatements have no bearing on the insured's death. For example, an insurance policy claim might be denied because the insured lied about smoking, even though he died in a car accident. If the misstatement was about a situation unrelated to the cause of death, the insurance company must pay out the claim.
Bad Faith Life Insurance
If, however, the insured dies more than two years after the policy is issued most states require the insurance company to pay out the death benefits.
Some insurance companies may deny paying accidental death benefits, claiming that what killed the insured was not an accident. This may happen even if official reports state the insured's death was an accident. For example, in the case of an automobile accident, the insurer might claim the death was self-inflicted or caused by negligent driving to avoid paying accidental death benefits. Or they may claim that a death was caused by a preexisting medical condition as opposed to an accident. Insurers may claim an accident was not an accident, even if the Certified Death Certificate and the Medical Examiner's Report rule the death an accident.
Denial of Accidental Death Benefits
Denying death benefits can save insurers money. According to an article in Bloomberg (3/1/11; citing a report from the American Council of Life Insurers), in 2009, insurers denied $396 million in death benefits. In many cases they get away with it because beneficiaries decide not to pursue the matter. That said, life insurance lawsuits have been filed against insurance companies accused of improperly denying benefits after an insured has died.
Life Insurance Lawsuits
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Last updated on Oct-10-13