While many people have life insurance policies, the policies themselves can be difficult to understand and full of arcane language. When it finally comes time to cash in the policy, people are often unprepared for the problems and loopholes that an insurance company might suddenly find in order to avoid paying a claim. Below are some of the most frequently asked questions about problems with life insurance policies.

What is an Unfair Insurance Claim Practice?

An unfair insurance claim practice is where an insurer attempts to reduce the amount of a claim or avoid payment altogether. The National Association of Insurance Commissioners has crafted a set of regulations and laws in an effort to reduce unscrupulous behavior by insurers.

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

No. The law in every state mandates that all insurance companies must inform a policyholder that a payment for their policy has been missed, and then provide a grace period, of varying length which depends on the type of insurance, during which the holder can pay and resume their coverage. Since life insurance is generally for larger amounts of money than other types of insurance, the grace period in most states is rather long, usually around thirty days. That means the insurance company must give you some time to pay off your late premium before they can terminate your coverage.

Although the law does not require it, some companies may allow you to reinstate a terminated policy even after the grace period, usually in exchange for a hefty fee, at their own discretion.

What an insurance company may NOT do is to allow you to miss a payment, or ignore a missed payment, without notifying you about the missed payment and then use that as an excuse to refuse to pay out your policy when you try to cash it in years later. Doing so would be acting in “bad faith,” and it could be the basis of a civil lawsuit.

Can a Life Insurance Company Cancel My Policy?

Once a policy is issued, a company can forcibly terminate it in very few ways; generally, only because you either missed a premium payment or made some kind of serious fraudulent misrepresentation when applying for the policy. Even with fraudulent misrepresentation, the fraud must be “material”.

This does not apply to the natural end of a term life insurance policy, which only insures a policyholder for a set term (5 or 10 years, for example). When that term ends, then so does the policy. While most companies offer plans to renew the term once it ends, an insurance company can refuse to renew it for any reason not protected by law, such as race or gender.

However, some states do insist that companies offer to renew certain types of insurance to customers whose terms have lapsed, or at least insist on an early warning if the company does not intend to renew a policy. If a company has failed to do this, it may be liable for damages, so you should contact an attorney if you feel your insurance was unfairly revoked.

How Does Divorce Affect a Life Insurance Policy?

Although varying state by state, divorce decrees can automatically cancel the designation of a spouse as the beneficiary of a life insurance policy, even if the policyholder made no specific attempt to do so. In these states, after getting a divorce, the policyholder would have to either file a new beneficiary designation or  mention in the decree itself that he intends his former spouse to remain a beneficiary. Otherwise, the insurance will be paid out to whoever else is a beneficiary or to the deceased’s estate.

Should I Designate My Beneficiaries In My Will?

You do not need to, and it may be helpful to not do so. While it is certainly legal to do so, altering a will is a much more complicated affair than altering the beneficiary of a life insurance policy. It is much easier to simply fill out the company forms to change your policy then to have to redraft your entire will. Doing so can also create problems if your insurance company and your will have different beneficiaries listed. If you do list the beneficiaries in your will, the benefit will have to go through complicated probate hearings, whereas an insurance company can just pay the beneficiary directly.

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

You will probably want to contact a qualified lawyer who has experience dealing with life insurance matters. Your lawyer will be able to give you a sense of what you are entitled to and what course of action you should take. In a civil lawsuit against the insurance company you may be eligible for compensation for the amount owed to you under the policy plus interest.

How Can I Sue an Insurance Company?

If you’ve been involved in a dispute with your insurance company, it may be necessary for you to take legal action. Understanding how to sue an insurance company can sometimes be difficult, especially if you’ve never had any such disputes before.

To begin with, the most important thing for you to do is to obtain a statement in writing from the company regarding the subject of dispute. For example, if they’re refusing to pay out on your personal injury policy, you need to obtain a written letter from the insurance company stating their reasons for the denial. To be sure, you should request as many written statements from the company as they can provide.
In addition, you should compile any documents and copies that you have that might be connected with the dispute. This can include contracts that you signed, past statements from the company, and a written account of events leading up to the dispute. These can all be used as evidence when suing an insurance company.

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

Life insurance policies are often the sole means of support for a family after the primary caregiver has passed away.  If you feel an insurance company has slighted you, or they refuse to pay out for questionable reasons, you should contact an insurance lawyer (or a business lawyer) at once to see what your rights are and if you can sue for damages.