One of the necessary incidents of a life insurance policy is that after the insured has passed away, he or she cannot be questioned about his or her motives or representations made when applying for the policy. Problems arose when at times insurers investigated and contested claims under life insurance policies and attempted to avoid liability for payment or attempted to rescind policies after the death of the insured based on alleged fraud, concealment, or misrepresentation in procuring the policy. Eventually, disputes of this nature resulted in the inclusion in most life insurance policies of incontestability clauses.
Such clauses provide that after a period of time stated in the policy, usually two years, the insurer may not revoke the policy based on an alleged misrepresentation in the application. Two years is considered to be a reasonable time within which the insurer can complete any investigation of statements made by the insured in the application involving his or her insurability.
The issue of suicide has long been a problem for life insurers. These issues included moral and religious revulsion against suicide, let alone the prospect of a person intent on suicide taking out life insurance as a means of satisfying debts he or she otherwise could not. The current suicide clause in modern life insurance policies reflects a long history of disputed and litigated claims.
Common suicide clauses preclude coverage for death by suicide or severely restrict the benefits recoverable if a death by suicide occurs within the first two years after the policy's issuance. The current suicide clause is the product of research that indicates that the great majority of cases in which an insured has committed suicide in order to make life insurance proceeds available to a beneficiary or creditors have occurred within a short time after the policy has been taken out.
Generally, there is a presumption against suicide. Since the suicide clause is in the nature of a policy exclusion, the insurer would bear the burden of proof that the insured's death was the result of suicide. In many cases, the insured will make this burden of proof an easy one for the insurer to sustain, for example, by leaving a suicide note. You might be surprised, however, in how many cases the insurer cannot sustain its burden of proof based on the presumption against suicide.
Most life insurance policies contain provisions governing the effect of a failure to pay premiums, which usually results in lapse of the policy and procedures for reinstatement after lapse. These provisions are relatively generous. Usually there is a thirty or thirty-one day grace period within which the insured can pay late premiums and avoid a lapse in coverage. The policy remains in effect during the grace period. If the insured dies during the grace period, the amount of the unpaid, overdue premium will be deducted from the loss payment to the beneficiary. When a policy is eligible for reinstatement, an insured may seek reinstatement by sending the insurer:
There is usually a time limit on seeking reinstatement, which can range from one to five years. The insurer has the right to approve or disapprove the reinstatement application. The date of reinstatement, if approved, is usually the date the insured has complied with all the insurer's conditions precedent to reinstatement.
A recurring circumstance occurs when the insured and the beneficiary under a life insurance policy die as the result of the same accident or occurrence. The law of the majority of jurisdictions is that the insured is presumed to have survived the beneficiary. Thus, the policy proceeds will be paid to the contingent beneficiary of the insured (if there is one designated in the policy) or to the insured's estate if there is no contingent beneficiary.
A person seeking to contest this presumption has the burden of proving that the insured, in fact, predeceased the beneficiary. A person who might seek to raise such a challenge would usually be a person entitled to share in the estate of the beneficiary who is not entitled to share in the estate of the insured.
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Note: This article was sent to us by: Walt Bielfield at 10072010
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