Making Sure Your Family Gets Paid

Family Gets Paid Life Insurance
 

You bought life insurance with the understanding that if you died your family would be protected. How do you make sure those financial benefits will be there for them? Understand your contract.

All life insurance policies have an “incontestability period” – a time limit (usually two years) during which the life insurance company has the right to dispute a policy’s validity based on information provided incorrectly on the application.

Even though an inspection report is obtained, and in some cases a medical examination is performed, the company relies a great deal on the answers given on the application when deciding whether or not to issue a policy.

It is important to remember that if an applicant fails to disclose information that would cause a policy not to be issued or to be differently rated, the policy may be withdrawn or a claim may be denied within this period.

With the policy in force after the incontestability period ends, the insurance company no longer has the right to deny claims or rescind the contract even if a misstatement in the application is discovered.

The policy owner will receive all the benefits as stated in the contract – claims will be paid and the policy cannot be withdrawn. This provision, however, does not apply in cases of fraud.

An example of this might be an applicant who is diabetic if this question is answered "no" when it should be answered yes a policy claim would likely be denied. The reason being applicants who apply for life insurance and are diabetic are generally rated i.e. pay a higher premium for the extra risk or declined. By mis-stating the answer to this question the insurance company was not given the proper information to assess the risk of the insured. They would have issued a policy with a given premium that they would not have normally issued if they had the proper information

Life insurance contracts also have a suicide clause, which specifies that the proceeds of the policy will not be paid if the insured takes his or her own life within a specified period of time (usually two years) after the policy is issued.

Many people don’t realize that if they replace an existing life insurance policy with a new policy, they will be subject to a new incontestability and suicide period.

Another detail to examine when reviewing your life insurance contract is policy exclusions – an “exclusion” is a statement in a policy which describes a condition or type of loss that is not covered by the policy. A common exclusion is an exception for accidental death caused by an “act of war” or death “while in active military service.”

Applicants who participate in hazardous activities such as skydiving or acrobatic flying may also have death exclusions in their policy as a result of these high-risk activities. Another exclusion to be aware of is a limitation on the policy payout if the insured is injured or dies in a restricted country.

Many insurance companies will either add a surplus premium or an exclusion clause for frequent visits to what they deem to be a high-risk region. It is crucial that the policy-holder is made aware of these details by his broker, and understands the potential implications.

The application wording can vary from company to company, and this can have a direct impact on any exclusions inserted in the resulting policy. As an example, Company A asks whether “the insured has or plans to travel outside of North America in the next 12 months,” while Company B asks whether “the insured has or plans to travel outside of North America in the next 36 months.”

This slight difference may result in Company B adding a travel exclusion clause to its policy, while Company A’s policy will not have one.

Buying life insurance is a prudent and selfless decision, but be sure that you fully understand the contract – its terms, conditions, limitations and exclusions – before you sign on the bottom line. Any ambiguities should be cleared up to your satisfaction by your adviser, and noted in writing.

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80 Comments

  1. Bailey 01/01/2013 at 2:53 am

    Your site is a most helpful resource! I have a friend who was in the hospital following a very serious failed suicide attempt which was done in an attempt to gain the benefits for her dependent father (they are deeply in debt). She has had a fixed premium policy since 2004 and it expires in 2016. Does the failed attempt mean they will discontinue her insurance? Does the two-year exclusion begin again? Thanks for any help.

  2. syed 01/03/2013 at 9:26 pm

    Hi Bailey,

    Thanks for the kind words. I’m sorry to hear about your friend’s situation.

    They would have to contact the insurance company directly to get more information on their policy. I have sent you an email with links to each carrier.

    Hopefully that helps out. Thanks

  3. Patricia 01/28/2013 at 3:23 pm

    I wish to name my brother or my neice as beneficiary on my insce..

    If I have bills to pay out of my estate, is the Life Insurance
    included or will they get the death benefit from the insurance?

  4. LSM Insurance 01/28/2013 at 3:35 pm

    Hi Patricia,

    If your brother is named as a beneficiary on your life insurance than the death benefit proceeds would not be included in your estate.

  5. Patricia 01/28/2013 at 3:56 pm

    Thanks so much. If my brother as ben. dies before me, and I do not name another -will my estate go to the Public Trustee?

  6. LSM Insurance 01/28/2013 at 4:04 pm

    If the primary beneficiary is not alive at the time of death and a contingent beneficiary is not named. The proceeds will go to your estate.

  7. Cath 03/26/2013 at 1:10 am

    Hi there,
    What a wealth of information you provide, thank you. I am not sure if I missed it or not, but…
    my uncle bought life insurance in 1991 while he was in Canada. In 2009, they located to the philippines and is still residing there. If he were to pass away in the Philippines, will his insurance that was signed in Canada pay out ?

  8. LSM Insurance 03/26/2013 at 9:41 am

    Thanks for the kind words. The policy will pay out assuming the initial application was answered truthfully and policy does not have any exclusions.

  9. Kate 05/19/2013 at 2:01 am

    Hi,
    My husband and I are in the process of buying joint term insurance. My husband was diagnosed for a certain infection two years ago. He had treatment and since that time he feels well. Before treatment the doctor had told him to come back after treatment and test again for the infection. My husband never did as he was busy and never had a breakout of the infection again. In the interview my husband mentioned about this diagnosis and treatment, but he didn’t say that he didn’t do the test for that infection again. So now we are wondering if we can and should disclose it? Or it doesn’t matter?
    Another question is if I die,( we have joint insurance) does the fact that my husband didn’t mention about the test he had to do in the application will affect his claim? If I die, insurance company will probably be checking if I stated everything correctly in the application or not?
    Thank you!

  10. LSM Insurance 05/19/2013 at 8:07 am

    Thanks for the note. You have to answer the application questions truthfully. Without seeing the initial question its difficult to comment on hiow your husband answered.

    Subsequent health issues after the initial policy was issued and accepted do not have to be disclosed to the insurance company. An example if you were approved for insurance and two years later become diabetic this does not have to be disclosed

  11. Kate 05/19/2013 at 10:50 am

    Hi,

    When a couple have joint insurance and one spouse dies, the surviving spouse makes a claim, does the insurance company check if the answers in aplication of both spouses were thrue? Or they check only the application of a spouse that died?
    Thank you!

  12. LSM Insurance 05/19/2013 at 7:46 pm

    Normally the insurance company would only review the claim of the spouse who passed away.

  13. VictorM 06/03/2013 at 1:10 am

    Yes I am going to buying Term Life Insurance. I am 47 years old and am concerned that the insurer may refuse to payout. If a death is ruled not suicide or accidental then can the insurance company still refuse to pay out ?

  14. LSM Insurance 06/03/2013 at 6:56 am

    Hi Victor,

    If the application questions are answered truthfully and the policy does not contain specific exclusion. The benefit will pay out.

  15. Carmen 06/19/2013 at 3:41 pm

    Great source for information! I understand the common exclusions for a policy being paid out as mentioned in your article, suicide within the first 2 years of a policy, the incontestability period, death during an act of war, death while in an “excluded” country, etc. Is there any reason why death due to cirrhosis from alcoholic liver disease would result in a denied claim?

  16. LSM Insurance 06/19/2013 at 4:02 pm

    Thanks for the note. Some No Medical Life Insurance policies have an exclusion for non accidental in the first 2 policy years. These policies ask few or no health questions and this is ine of the safeguards the insurance company often puts in place

  17. CMD 06/25/2013 at 5:10 pm

    After the two year contestability period, you speak of cases of Fraud. What exactly is considered Fraud?

  18. LSM Insurance 06/25/2013 at 5:59 pm

    An example of fraud might be someone who was diagnosed with Cancer and answers “no” to a question asking if they have ever been diagnosed with Cancer.

  19. Harry 09/03/2013 at 5:51 pm

    Applicant does not have diabetes or any other heart related problem but applicant’s father who is alive , hale and hearty @ 70 yrs currently has had Type 2 diabetes for 8 years which is being controlled with exercise , diet and some minor meds .

    How much of an effect will this information be on the Insurance Company’s decision if the Applicant being 40 does not have any diabetes or heart related problems incl. blood pressure or cholesterol etc.

  20. LSM Insurance 09/04/2013 at 8:42 am

    Hi Harry, Family history plays more of a role in the insured’s ability to obtain preferred rates. Based on on this information only the applicant should still be able to qualify for preferred rates.

  21. David 05/09/2014 at 8:02 pm

    If I have a plan on for years and then want to change to a different plan through someone else will scotialife give me back the premiums I’ve paid in or do they just keep that money ?

  22. LSM Insurance 05/10/2014 at 9:31 am

    Hi David. It would depend on the wording of the contract are they changing the plan or just increasing the premium. Regarding a return of premium almost all Term plans do not have a return of premium but you contact Scotialife and get a response in writing to your questions.

  23. DC 05/12/2014 at 11:17 am

    Hi,

    I’m looking for 20yr term insurance for both of my husband and myself. We have 2 young kids.

    An agent suggested to go with Foresters. He stated that it’s better for people with kids as it provides more benefits with the same amount of premium that other insurance companies charge.

    It sounds very good but when I google comments about this company I found that it has a lot of complains about how difficult to make death claim. Like it took unreasonably long period of time(ie. 9 months) to settle death claims. Some cases even got declined.

    I brought it up to my agent and he said he has no problem with this company so far and he pointed out that the complains that I found were all coming from US.

    I live in Canada and I didn’t find any complain from this end yet. So it a good sign but I still have concern about it.

    I want your opinion on this company. Do you have any experience with it?

    Thanks!

    DC

  24. LSM Insurance 05/12/2014 at 12:06 pm

    Thanks for the note. There are no measurable stats which show Foresters have better or worse claims paying ratios than other companies. Are experience with them has been good

  25. Raj 01/02/2015 at 7:09 am

    Hi LSM,

    Thanks for the discussion subject.

    I have been diabetic for last six years and having medicine for diabetic using my insurance cards provided by my employers. Recently one insurance consultant approached me and some how convinced to take a critical illness insurance without medical checking and without stating i am a diabetic, and i have paid around 10 instalments. They were saying about a incontestability period of 2 years and afterward i will not be denied when i do a claim thought i have stated it wrong that i am not a diabetic? Is it right? Do this insurance companies can find my medical history from my previous consutlations using insurance cards? Should i discontinue this insurance policy?

    Thanks and Regard
    Raj

  26. LSM Insurance 01/02/2015 at 2:05 pm

    Hi Raj,

    You should answer the application questions truthfully. An insurance company will not pay out in the case of fraud.

  27. scott 03/03/2015 at 2:39 pm

    is there a way to find out if there is a policy on someone who has died? My mother died unexpectedly and she hadn’t talked about it with any of us.

  28. LSM Insurance 03/03/2015 at 5:41 pm

    Hi Scott,

    I’m sorry to hear about that. You could check safety deposit boxes, past bank and employee pay slips to see if there are any life insurance papers.

    The attached insurance directory gives you a listing of the different life insurance companies in Canada and their contact details link to lsminsurance.ca

  29. Wanda 03/07/2015 at 8:31 pm

    If a person refuses medical treatment for an illness , and eventually dies from that illness, can their life insurance be denied to their beneficiary ?

  30. LSM Insurance 03/08/2015 at 11:41 am

    Hi Wanda,

    That is an interesting question. You would have to check the wording of the policy. If you can`t find your policy or if its unclear in the policy wording – you could ask for a response in writing from your insurance company. In general terms if the applicant was truthful on their initial application the claim would pay out. Assuming depending on the situation around the illness, this is not deemed suicide. An insurance policy will not pay out if suicide is committed in the first two policy years.

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