Lying on a Life Insurance Application Can Void All Coverage

Lying on a Life Insurance Application Can Void All Coverage

An insurer is typically presume to know the rights at hold under the life insurance contract. However, if pertinent (i.e. material) facts are unknown or deliberately withheld from the insurers, the insurer’s actions in ignorance of these facts will not constitute a waiver of its rights. So if a premium payment were accepted on a policy applied for on a non-smoking basis, the insurer’s right to deny a claim would not be forfeited if the…

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Considerations When Naming a Trustee as Beneficiary on a Life Insurance Policy

Considerations When Naming a Trustee as Beneficiary on a Life Insurance Policy

When naming a trustee as policy beneficiary, it is good practice to name a back up beneficiary in case the trust is terminated (or, for some reason, never comes into existence or is for any reason, found to be defective). Consider providing that, if the trustee cannot accept the proceeds within a specified number of days (such as 90) after the insured’s death, the insurer may make settlement on the insured’s estate. This prevents an…

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What are the Legal Rights of Intended and Incidental Beneficiaries in Life Insurance?

What are the Legal Rights of Intended and Incidental Beneficiaries in Life Insurance?

There are two types of beneficiaries: intended and incidental.  Intended beneficiaries are the only type with standing (i.e. a legal position that bestows the right) to sue the insurer to enforce their rights under the contract. As its name implies, an intended beneficiary is one who the parties to the contract expected would benefit from its performance. Such parties include those who were named without consideration (so called “donee beneficiaries”) and those named in satisfaction…

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What Happens When an Error in Age is Discovered on a Life Insurance Policy?

What Happens When an Error in Age is Discovered on a Life Insurance Policy?

If the error as to the age is discovered by the insurer prior to the insured’s death, either premiums or coverage can be adjusted. Usually, if the insured’s age was higher than stated in the application, the insurer will allow the policy owner to pay the difference in premiums (with interest) and keep the original policy or it may issue a new policy with the lower death benefit with the original premium level. If the…

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When does the 2-Year Contestability Period Start on a Life Insurance Policy?

When does the 2-Year Contestability Period Start on a Life Insurance Policy?

Usually the contestable period runs from the date of issue, which is typically the same as a policy date. But the policy date is not necessarily the date of issue. For instance, if an applicant wants to “backdate” the policy to save age (i.e., obtain a lower premium by paying a premium for which no insurance was in force in return for continuing lower premium), the policy date could be as much as six months…

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Premium Due Notification Issues in Life Insurance

Premium Due Notification Issues in Life Insurance

Many states require that the insurance company must notify the policyowner not more than 45 days or less than 15 days before the due date of the premium. That notice must specify the amount payable, when it is due (the due date), and where it is payable. Some of these statutes penalize the insurer who does not give timely notice by extending the life of the contract for some period of time (e.g., six months…

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Why the Application for Life Insurance is Always Attached to the Policy Itself

Why the Application for Life Insurance is Always Attached to the Policy Itself

The policy owner must be provided with a copy of the application that both eliminates uncertainties as to what is contained on it and also assures the policyowner that the policy in his or her hands contains every relevant document. The insured and/or policyowner is given a chance to be sure that his or her responses to the agent’s (and/or medical examiner’s) questions were properly recorded and request changes if they were not.  However, the…

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Are the Death Benefit Proceeds of a Corporate Owned Life Insurance (COLI) policy tax-free?

Are the Death Benefit Proceeds of a Corporate Owned Life Insurance (COLI) policy tax-free?

Note that under the recently modified rules governing employer-owned life insurance, employers must now satisfy certain notice and consent requirements in order for the death proceeds to be received tax free. The insured employee must be notified in writing that the employer intends to insure the employee’s life, and the maximum face amount of the employee’s life could be insured for at the time the contract is issued. The notice must also state that the…

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Things to Consider Before Pledging Your Life Insurance as Collateral on a Loan

Things to Consider Before Pledging Your Life Insurance as Collateral on a Loan

Policyowners use a collateral assignment (as the creditor’s interest may appear) form of transfer almost exclusively as a secondary source of payment when they pledge a policy on a temporary basis as collateral for a loan.1 The term “collateral” implies that the policyowner-debtor is primarily liable for the loan and only if he or she defaults will the lender call upon policy values to back up that obligation. The cash values in the policy serve…

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2 Ways to Transfer Ownership of a Life Insurance Policy

2 Ways to Transfer Ownership of a Life Insurance Policy

As property, policyowners can transfer their life insurance contracts to other persons or entities. A policyowner can transfer either all or only some of the “bundle of rights” that comprises a life insurance policy to almost any person or entity. The two basic ways of making a lifetime transfer of a policy are: (1) the absolute assignment; and (2) the collateral assignment. An absolute assignment, as its name implies, transfers all the policyowner’s rights irrevocably….

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