Will Your Insurance Company Pay Out When You Need It?

First Wal-Mart goes after an insured woman and now I find another article where an insurance company refused to pay out to a family who lost one of the insured to cancer.

In the first instance, the settlement was paid without question but when the woman was rewarded a settlement, for the injuries she received in a devastating car accident, Wal-Mart demanded that the monies they had paid for her hospitalization be returned to them. Fortunately, for the woman involved in the case a law suit was filed and while it added additional stress to an already stressful situation she was not required to return the funds.

In the second case a husband and wife purchased a life insurance policy, when they discovered that they were to be parents, from The Savings Bank Life Insurance Co. of Massachusetts. Since they were in their thirties they had no idea that a claim would be made on this insurance for years. Sadly, however, just a year after the birth of their daughter the mother developed an aggressive form of breast cancer and died.

Facing life as a single father the husband filed a claim against the policy only to find out that SBLI would not pay. The company instead claimed that despite the glowing reports regarding both of their medical conditions from the insurance doctors at the time the policy was issued the mother must have known that she was ill before the policy was issued.

Since we all know that it takes two incomes to provide for a family these days the father still devastated by the lost of his wife was faced with the dilemma of how he was going to be able to provide for his and still fulfill his commitments at work. In our country and in Massachusetts specifically, anyone seeking life insurance should be made aware that it is up to the insured to prove that they did not misrepresent their well-being and were in good health at the time the policy was issued.

When questioned, SBLI contended that at the time the policy was issued it was required that the person being issued the policy be in good health, even if they were unaware of conditions contrary to those beliefs.

I must note, however, that since that time SBLI has settled with the family in this instance and is backing their fight to change the existing law. The new legislation would be dubbed “Jenny’s Law” after the mother who inspired the change. If the new law passes it will change the 1920 policy from placing the burden on the policy holder to the insurer who will have to assume responsibility for issuing the policy. The presumption would then be that the company would not have issued the policy if they did not believe the insured was in generally good health.

So, be aware that if your current policy contains a provision that states that the insured person must be in good health when a policy is issued, and also contains an “incontestability” provision, which says that for a certain period after a policy is issued, usually two years, an insurer can rescind a policy or refuse to pay a claim. Both are standard in life insurance policies and if anything happens to the insured during that time period insurers generally will carefully scrutinize the policy for loopholes so that they are not required to pay the claim.

My feelings on this are that when one buys insurance they are betting that they are going to need it, if not now, at some future date while the insurance company is betting that the person will not need to make a claim for years and that they will be able to pocket the premiums adding to their bottom line. Does this mean that you should not buy medical or life insurance? Absolutely not. I simply want to point out that the purchaser should be wary when purchasing insurance. As a consumer we all need to carefully read contracts and check out company payout records before purchasing anything that requires a financial commitment.