Life Insurance Dirty Tricks

Would you believe that insurance companies withheld $1 billion in death benefits from beneficiaries of life insurance policies? If your answer is “No”, think again, according to an advanced story in TODAY about a Consumer Reports article to be published this month.

This finding of insurance company cheating doesn’t surprise us, but the amount is staggering.

Life insurance companies had their own version of “Don’t Ask, Don’t Tell” when it came to informing beneficiaries of policy benefits when an insured died. If a beneficiary didn’t know about the policy or about the insured’s death, the insurance company wouldn’t tell.

More than that, some companies, even knowing that their insured had died, not only didn’t inform the policy beneficiaries, they continued to charge the policy with premiums they knew couldn’t be paid until the policy ‘s cash reserves were drawn down before canceling the policy.

Now that practice has stopped in those states that called the insurance companies on it. Not only did the companies have to pay a fine, they also had to install systems which would be likely to see to it that beneficiaries were informed and paid when an insured died.

It’s not that insurance companies did not have a resource for learning when a policyholder died. The Master Death List of the Social Security Administration is open to them and they used it willingly to locate annuitants that had died so that they coukld stop paying annuities. But, they didn’t use the same information to notify beneficiaries of policyholder’s death. SHAME ON THEM!

To avoid any of these insurance industry shenanigans, everyone who takes out a life insurance policy should let the beneficiaries know about it. It is not necessary to know the amount, but beneficiaries should know there is a policy, the name of the insurance company and how to reach the company in the event of death.

If you can do it tactfully enough, you might want to mention this life insurance dirty trick to an older friend or relative who might have a policy. This will suggest that they give the necessary policy information to their beneficiaries if they haven’t already done so.

Insurance companies fight tooth and nail to keep from paying benefits.

Let’s not make it easier for them.

Hope For Long Term Care Insurance

Every great once in a while, the interests of an insurance company and a policyholder coincide and we all say, “Hallelujah!”

Much of the general public isn’t aware that such a coincidence of interests is a possibility. More and more Baby Boomers are wondering how to protect themselves against the vagaries of old age. The good news is that we are living longer, sometimes healthier lives. The bad news is that the cost of caring for older people is fast expanding. Solutions are hard to come by.

Add to this that long term care insurance, as we knew it just a few years ago, is a thing of the past. The cost of such insurance has exploded and many companies are just not writing it any more. What to do?

One solution receiving an upsurge in interest is a new, modified method of paying for long term care protection – using life insurance benefits to help pay the high cost of living in a senior residence or a nursing home.

Generally the way it works is that the policyholder uses a part of a life insurance death benefit now to help pay his or her assisted living or nursing home costs. It is a trade-off between the life insurance benefit and the burden of present living costs.

So, what the insurance company pays for the policyholder to live in a nursing home today is subtracted from what the policyholder’s beneficiary would get tomorrow on the policyholder’s death. Of course, there is a reduction in the total benefit to sweeten the pot so the insurer will have an interest in making the deal.

By means of this method, cash-strapped senior policyholders are able to meet their heightened living costs by deducting them from their eventual life insurance payout. Such a system can be tough on beneficiaries but it certainly eases the sometimes harsh burdens of later years for their benefactors.

The arithmetic of such a deal is complicated with the parties having to weigh the relative values of present circumstances, i.e., age, health, payment amounts and payment schedule, among other items before coming to a decision. The closer death seems, the more likely the insurance company will be to cooperate to get a reduction from the policy death benefit.

As people grow older, they should consider such a program with their life insurance carriers, so as to stretch their resources to make them last as long as possible.

But, it is not recommended that the ordinary policyholder go into a negotiation with an insurance company without some independent expert help who has no ax to grind.

Your insurance agent or broker may not be your best bet because of commission or relationship issues.

Get help from some one knowledgeable who has nothing to gain or lose because of the advice.



The Cold Comfort Of Insurance

In the normal course of our lives, most of us learn to give people the benefit of the doubt, at least sometimes. Insurance companies never do. The reason – money.

Why this is so devastating to many people is that they learn this fact after they have been stricken with a disease or disability which seriously affects their lives. For all of their existence they have been told that insurance is meant to protect them and make them feel more comfortable should a disaster strike. Then disaster strikes and they learn the awful truth – the insurer won’t pay!

It really is simple arithmetic – every dollar the insurer keeps in unpaid claims is a dollar that goes to insurer profits. And, PROFIT, only PROFIT is the name of the of business today.
Owning an insurance policy used to give a policyholder some sense of comfort knowing that if the worst happened, an insurance company would be standing at their side and lending a hand according to the terms of their policy. Not so in today’s totally profit-centered world.

A perfect case in point is that of John Bray who had the gross misfortune to develop a brain tumor while employed as a division head for a travel company. As happens in many such cases, he didn’t consciously know there was anything wrong with him, but his conduct and behavior began to change on the job, leading to his ultimate dismissal.
Being unaware of his tumor, Mr. Bray tried to work as a consultant, but his behavior continued to deteriorate.

When he was finally diagnosed with a large malignant tumor in the brain, he had been dismissed from his employment for about 8 months. The overwhelming medical evidence was that he had suffered from the tumor which affected his behavior for a long period prior to the time he was dismissed.

Mr. Bray then filed for long term disability benefits under the group LTD policy which covered him as an employee f the travel company. But the insurer denied Mr. Bray’s claim, saying he was no longer covered by the policy once his employment terminated.

Did the insurer offer any medical evidence to refute the claimant’s medical findings? Of course, not. The insurer knew the truth of the matter so it didn’t even ask for a medical exam. Did that stop the insurance company from continuing to deny John Bray’s claim? Of course, not.

The insurer continued to insist that Mr. Bray had left his employment before becoming disabled, despite a clear showing by all examining experts in the field that he was stricken with his ultimately fatal illness before he left his covered employment and therefore was entitled to benefits.

The evidence was that John Bray was an outstanding employee prior to the time he was stricken with the brain tumor which enlarged relatively quickly. The tumor caused his employment behavior to change radically and, as a result, his employment was terminated.

Clinging to the fact that Mr. Bray’s brain tumor was not discovered for several months after he left his employment, the insurance company said he was no longer an employee and therefore not entitled to coverage. Not only that, Mr. Bray’s employer had also afforded him a life insurance policy as part of his employee package of benefits and the company refused to pay on the life policy because it claimed he had left his employment before he died.

The court, on the basis of the clear evidence before it, ordered the company to pay Bray’s estate the disability income benefits and the life insurance benefit.

Two things you can glean from the policyholder’s trials and tribulations in this case:

* If you become afflicted with a disabling disease which stays hidden until after you have terminated your employment, you probably face a long uphill fight with your insurer.
* If you should happen to be so unlucky, don’t give up. Fight for your rights.

“Wimping” out is not an option for you or your family.

Insurers See Only What They Want To See

When insurance companies look to do what is right, they look though a 1-way mirror. This comes as no surprise to those of us who have to fight with insurance companies every day to get them to do what is right for our clients.

What brings on this observation is the ongoing investigation by 35 states of “unclaimed” life insurance policy death benefits which seem to disappear into company books, never to reappear again.

The “right” part of the statement has to do with annuities, which the companies have contracted to pay their customers (in return for good money, of course). Most of these annuity contracts call for the annuity payments to end when the annuitant dies. Many times, the annuitant dies and the insurer receives no notice, thereby increasing the danger that the company will continue to send annuity checks to a deceased.

But, never fear. There is a Master List of Deaths maintained by the Social Security system which is also very interested in learning when one of its benefit recipients dies. The data in this list is kept current and is available to anyone interested for a fee.

We have no argument with the insurance companies protecting themselves by following the Master Death list closely and updating their annuity files so as not to pay benefits to those who have expired.

The problem is that these same insurance companies don’t use the Death Master List to notify life insurance beneficiaries of policyholders who have died leaving paid policies for relatives and others who are unaware of the policies.

The result of this failure is that the life insurance benefit may never be paid if the beneficiaries didn’t know they were named in the policy. Further, most states have an escheat law which commands that in any situation where life insurance proceeds are unclaimed for a certain period of time, they escheat to the state.

If the insurer doesn’t know that the policyholder died and the policyholder is ill or so incapacitated that he or she can’t take care of business, the company can send out premium notices and then cancel the policy for nonpayment, thereby writing the potential liability off its books relatively quickly.

We have a feeling that the insurance companies under investigation will wind up paying hefty fines in a settlement to the investigating states, just as Unum did in 2004. See Unum. But, in actuality, they will be paying a lot more. It will be another instance of insurance companies playing fast and loose with their policyholders and making every effort to add dollars to their bottom line.

This is why we shudder when we hear legislators trying to tell people that Social Security should be shifted to a private insurance system. The record of the private insurance industry in dealing with their policyholders does not give us much confidence that such an adversarial system, with profit as the main underlying motive, will deliver for Americans the social network they have come to expect from Social Security since 1934.

We know that the system needs tightening up economically – but, not destruction at the hands of private insurers. There are many ways in which more revenue can be earned while benefits are reduced in a humane way, that will allow the system to continue for decades and decades to come.

With the way that insurance companies fight their policyholders to hold onto every dollar
they can, as most recently demonstrated by the ongoing Master Death List investigation,
the Unum probe and settlement, IME doctors, denial bonuses for their employees, why
would anyone in their right mind entrust the future of Social Security to private




Life's Not A Bowl Of Cherries

It comes as no surprise to those whose law practice entails getting money for clients from life insurance companies, that with insurers, there is no such thing as a “slam dunk” claim.

Before we started working as adversaries to insurance companies, we always thought a life insurance policy would be the exception to the usual ”let’s find a way around paying rule”, i.e., the policyholder has died, so let’s pay the policy. Boy, were we mistaken.

One would think there is no more definitive condition than death. In that regard you would be right. But, when it comes to an insurance policy, you are overlooking the credo of the insurance industry: Maybe we can find a way around it. And, they are very creative in trying to find ways to avoid paying.

A major reason for a turndown when it comes to paying life benefits is what the insurers call a “material misrepresentation” on the policy application. Because of the inadequate vetting system insurers choose to use when underwriting a life insurance application, many policies are issued which are based upon applications in which the policyholder had a spate of selective and “forgetful” memory.

Being in a hurry to grab premium dollars, many insurance companies rush their applicant screening (if any) and only take screening seriously when a policyholder dies and it comes time to pay the death benefit. Suddenly, a complete and thorough investigation is in order, including dotting every “i” and crossing every “t”. We call this “post-claim underwriting” and it is rampant in the life insurance industry.

Why leave a policyholder feeling secure for years only to deny a death benefit for a purported misrepresentation which the insurer concocted after payment is due? The insurer will tell you it is to maintain the integrity of its risk assessment system so as to be fair about the degree of risk and not to pay illegitimate claims.

But, why can’t the companies assess the risk before issuing the policy? They have access to and can review all medical records of the insured and can decline to issue a policy if there is reason to do so. That would leave them in the position of not issuing a policy they would later find they should not have issued and leave the purchaser free to seek protection elsewhere. However, that would mean no premium dollars to the insurer.

It used to be that all life insurance policies had a 2-year incontestability period, after which the insurer could not deny a claim based upon misrepresentation in the policy application. But, now nearly all states allow an exception for “fraudulent misrepresentation” in policy incontestability clauses, making the 2-year period completely illusory.

With an exception for “fraudulent misrepresentations, there is no time limit to restrict the carrier from contesting payment, even many, many years after the policy was issued. All the insurer has to do is allege “fraudulent misrepresentation” and the death benefit is off to the races on a very muddy track. So much for the peace of mind a life policy is supposed to bring.

Life insurance is a highly competitive business in which companies are willing to take risks for premiums. If you turn down an applicant, your competitor may very well say yes, leaving you out in the cold.

From the company’s point of view, it is better to zip through the vetting of the application, knowing that you can always try to reject the claim after the person dies. This procedure also is less costly to the insurer which does not have to spend serious money taking care to look at the application, before a policy is issued.

Zipping through the app procedure gets the premium dollars rolling in faster. Never mind that the later rejection of the claim may cause the beneficiary a disastrous hardship at the worst possible moment in their life.

This procedure, entrenched at most life companies, is a win-win for them.

And, that’s just the way insurance companies like it.