Simply put, life insurance is a contract between a policy holder and an insurer, or an assurer. The contract serves as proof of the insurer’s promise to pay a designated beneficiary a designated amount of money when the insured dies. This payment is made in exchange for premiums, which are paid by the policyholder during their lifetime in which they hold a life insurance policy.

There are numerous different types of life insurance to be aware of, categorized as either being term life insurance or permanent life insurance. Term life insurance lasts for a set amount of years before expiring. The policyholder chooses the term, generally in increments of ten years. Alternatively, permanent life insurance remains enforced for the entirety of the policyholder’s life. However, if the policyholder stops paying premiums or otherwise surrenders the policy, the policy will expire. Permanent life insurance is generally more expensive when compared to term life insurance.

Life insurance laws differ from state to state. This is largely due to the fact that there are no federal regulations which govern life insurance policies and providers. What this means is that even when a singular life insurance provider operates in every state, they will need to issue policies that are different in each state, because the governing laws are different in each state.

Although a large number of people have life insurance policies, some of the problems associated with life insurance policies are relatively common. An example of this would be the policies themselves generally contain technical and vague language. When it comes time to cash in the policy, the people involved (such as the policyholder or the beneficiary) can be unprepared for the various issues and loopholes that the provider finds. The policy provider may bring up these issues in order to avoid paying out the claim. 

What Is an Unfair Insurance Claim Practice?

An unfair insurance claim practice involves an insurer attempting to reduce the amount of a claim, or avoid payment altogether. The National Association of Insurance Commissioners has enacted a set of regulations and laws intended to reduce unscrupulous behavior by insurers. 

Life insurance denial is one example of an unfair insurance claim practice. It is important to note that there are several instances in which denying the payout of a life insurance policy is not necessarily unscrupulous, or unfair. There are specific terms that the policyholder must be aware of when they sign the contract, such as failing to disclose a medical condition being considered grounds for denial.

Some examples of behavior that may indicate that the provider is engaging in unfair insurance claim practices include:

  • The provider claims to have a policy of appealing arbitration awards that claimants win. This is done in an effort to compel claimants to accept settlements or compromises out of court for a lesser amount;
  • Persuading claimants not to opt for litigation by offering substantially less than they would receive if they sued in court;
  • Failing to attempt to reach a quick, equitable settlement when fault is clear;
  • Refusing to pay a claim without an exhaustive investigation of seemingly extraneous information associated with the claim;
  • Failing to maintain a set of standards for investigating claims falling under an insurance policy;
  • Failing to react to claims made in a reasonable amount of time;
  • Not telling the whole truth, or lying about certain provisions of an insurance policy, in terms of what is and is not covered by the policy;
  • Providing a reason for the denial of a claim, or for the offer of a settlement, in an unreasonably short amount of time; and
  • Delaying the investigation of a claim by requiring the opinion of an expert such as a physician, or by requiring them to submit to different reports, when doing so seems unnecessary or is unlikely to uncover new information.

Can My Insurance Company Automatically Cancel My Policy If I Have Missed a Payment?

Simply put, no. Each state mandates that all insurance companies must inform a policyholder when a payment for their policy has been missed, and then provide a grace period. This grace period is of varying length depending on the type of insurance, and during this period the holder can pay in order to resume their coverage.

Because life insurance is generally intended for larger amounts of money when compared to other types of insurance, the grace period in most states is considerably long, usually around thirty days. What this means is that the insurance company must provide you with some time to pay off your late premium before they can legally terminate your coverage.

Although not required by law, some companies may allow you to reinstate a terminated policy even once the grace period has expired. This is usually in exchange for a large fee, which is set at their own discretion.

However, an insurance company may NOT allow you to miss a payment, or ignore a missed payment, without first notifying you about the missed payment and use that as an excuse to refuse to pay out your policy at a later date. Such actions would be considered acting in “bad faith,” and could serve as the basis of a civil lawsuit.

How Does Divorce Affect a Life Insurance Policy?

To reiterate, much of the information associated with life insurance policy regulation varies from state to state. In general, divorce decrees can automatically cancel the designation of a spouse as the beneficiary of a life insurance policy. 

This remains true even if the policyholder made no specific attempt to do so. In such states, the policyholder must either file a new beneficiary designation or mention in the decree itself that they intend their former spouse to remain a beneficiary after getting a divorce. Otherwise, the insurance will be paid out to whoever else is a designated beneficiary, or to the deceased’s estate.

What Should I Do If I Think the Insurance Company Is Improperly Withholding Money from Me? How Can I Sue an Insurance Company?

If you think the insurance company is improperly withholding money from you, or you’ve been involved in a dispute with your insurance company, you should contact a local life insurance lawyer. They can give you an idea of what you are entitled to, and what course of action you should take according to the laws of your specific state. In a civil lawsuit against the insurance company, you may be eligible for compensation for the amount that is owed to you under the policy, plus interest.

Understanding how to sue an insurance company can sometimes be difficult. The most important thing for you to do is to obtain a statement (in writing) from the company regarding the subject of dispute. An example of this would be how if they are refusing to pay out on your personal injury policy, you will need to obtain a written letter from the insurance company stating their reasons for the denial. In order to be certain, you should request as many written statements from the company as they are willing to provide.

Additionally, you should compile any relevant documents and copies that you have that could be connected with the dispute. This can include:

  • Copies of contracts that you have signed;
  • Past statements from the company; and
  • A written account of events leading up to the dispute.

Do I Need a Lawyer If I Need Help with a Life Insurance Policy?

Hiring a lawyer for life insurance claims can help ease the amount of stress and frustration associated with life insurance policy problems. An experienced and local lawyer, such as a life insurance lawyer, can help you review the terms of your policy in order to determine what your legal options may be. Additionally, an attorney will help you gather evidence to support your claim, and will also be able to represent you in court, as needed.