Buying and Selling Life Insurance Policies in New York

Insurer’s Late Notice of Premium Due Leads to $1 Million Payment for Trief & Olk Client

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Individuals who have purchased life insurance in New York are protected by certain provisions of New York’s insurance law, so that policies cannot be canceled or payment denied for failure to pay the premiums on time without the insurance company providing adequate notice.  If the proper notice is not provided, the policyholder has the benefit of a one-year grace period during which the policyholder can pay the amount owed and the policy claim cannot be denied.

Section 3211(a)(1) of New York Insurance Law requires that for policies for which premiums are paid annually, semi-annually, or quarterly, any notice that the policy will be canceled due to non-payment must be sent “at least fifteen and not more than forty-five days prior to the day when such payment becomes due . .”  The notice must provide the following details:

  • The notice must be mailed to the last known address of the policyholder (or any other person designated to receive notice on behalf of the policyholder); and
  • The notice must state the amount due, date due, place to where and person to whom the payment is payable; and
  • The notice must specify that if the payment is not made within the given time frame or the specified grace period thereafter, the policy will terminate or lapse.

Section 3211(b)(1), (2).  If an insured who lives in New York receives notice from an insurance company that a life insurance policy has been cancelled due to non-payment, the policyholder should investigate whether the initial notice of premium due complied with the procedures outline above.  For example, if the notice was sent only 10 days before the payment was due and the insurer cancelled the policy for non-payment, the insured could challenge the cancellation because the notice did not comply with the statute.  As long as the insured sought to cure the default by paying any outstanding premiums owed within the one-year grace period, the insurer would have to reinstate the policy.  If the insured dies within that one-year grace period, the insurer would have to pay the claim.

Note that without the benefit of this grace period, the insurance company may offer the policyholder the opportunity to have the policy reinstated but can require the insured to undergo new medical underwriting.  In other words, the insurer would have another opportunity to review the insured’s medical history and could decide not to re-issue the policy or to charge a higher premium than before.  If the insured’s health has declined since originally obtaining the life insurance, the new coverage may be more expensive or provide a lower benefit than under the policy as originally issued.  Thus, the one-year grace period provided by Section 3211 protects the insureds from losing affordable life insurance coverage.

Trief & Olk recently obtained the full $1 million owed under a life insurance policy issued by Protective Life Insurance to a New York resident when the notice was mailed 11 days prior to the date the premium was due.  Because the insured had recently moved, the notice apparently did not reach him prior to the date the payment was due.  He eventually received a follow-up notice after the policy had been cancelled and tried to have the policy reinstated but the insurer undertook new medical underwriting, which had not been completed by the time the insured passed away.  The beneficiaries sought our firm’s assistance and after a close review of the documents, we recognized that the premium notice had been sent 11 days from the due date, which was outside the timeframe provided by the statute.  After we demonstrated non-compliance with New York law, Protective Life Insurance agreed that the premium notice did not comply with Section 3211 and agreed to pay the policy proceeds in full, along with the interest that had accrued since the death.

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Divorce Impacts Insurance Coverage Decisions

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When a marriage ends in divorce, the parties’ attorneys should address issues relating to life insurance to ensure the parties’ intentions are fulfilled years later when an ex-spouse dies.  For example, the parties can include a provision in the divorce agreement requiring the party paying alimony and/or child support to maintain life insurance for the benefit of the former spouse.  This practice is a common tool to make sure that adequate funds are provided to the former spouse (and/or children) if the insured party passes away during the period when alimony and/or child support would have been owed.

Unfortunately, if the divorce agreement does not address life insurance at all or if the language in the agreement is unclear, disputes can arise after the insured former spouse passes away, resulting in the claim being denied or contested by multiple parties.  At Trief & Olk, our life insurance attorneys see many cases where different parties assert competing claims to the same insurance policy proceeds, such as disputes between children from the first marriage and the second spouse.

To avoid such a dispute regarding a life insurance claim, it is important for the attorneys who are handling the divorce to ask about any existing life insurance policies and the extent to which the parties intend for coverage to be maintained in the future for the ex-spouse and/or children; then the parties should take steps to put in place the coverage required and designate beneficiaries to comply with the terms agreed upon.  For example:

  • If the party providing child support is obligated to purchase life insurance, that party should make sure that the beneficiary is properly designated to show that the insurance proceeds are paid to an adult (usually the ex-spouse) on behalf of the children;
  • Steps should be taken to ensure that the party obtaining the coverage cannot change the beneficiaries without the consent of the party for whom the coverage is maintained;
  • The insured should notify the insurance company that payment of any insurance proceeds must comply with the terms of the divorce agreement or court order, and provide a copy of the relevant documentation; and
  • If the parties agree that the insured party can reduce the amount of life insurance coverage over time (such as when a child reaches the age of 21 or after a certain amount of alimony has been paid), the language in the divorce agreement should clearly reflect the parties’ understanding as to how such changes can be made and the amount of coverage that must remain.

One mistake that is sometimes made is assuming that a life insurance policy purchased while the couple was married will satisfy the obligation to obtain coverage, without making any changes.  If, however, no changes are made, the outcome could be the opposite of what the couple intended, depending on the law of the state where they reside.

In 26 states (including both New Jersey and New York), statutes provide that any life insurance beneficiary designations made prior to the divorce are considered to be revoked when the divorce is finalized, meaning it is as if the designation were never made.  These statutes are based on an assumption that the insured person usually would not want to keep the former spouse as the beneficiary of her life insurance policy but may have neglected to change the beneficiary after the divorce.  Although enforcing these statutes can lead to a result that is the exact opposite of what the parties wanted, the U.S. Supreme Court recently ruled that such statutes can be enforced, even if the statute in question was passed after the parties had divorced (and, thus, at the time of the divorce, they could not have asked their attorneys to plan accordingly).  Sveen v. Melin, 138 S. Ct. 1815, 1822-23 (2018).

The best solution for avoiding disputed life insurance claims that arise after a previous divorce is to plan in advance – making sure that the attorneys handling the divorce specifically consider what life insurance coverage should be in place and check to make sure that the beneficiary designations are documented properly to avoid later being undone by operation of state law.  If, however, you do have a dispute relating to life insurance proceeds, the life insurance attorneys at Trief &Olk are available to answer your questions and represent you if life insurance claim has been denied or is disputed by another purported beneficiary.  Feel free to consult our website for examples of the many successes we have had when competing parties contested payment of life insurance benefits or call us directly to discuss how we may help you.

Life Insurance Policies with Vanishing Premiums – and Vanishing Policies

Protecting Your Employer-Provided Life Insurance

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Many employers offer their employees group life insurance coverage for which the employer pays the premiums.  The benefit offered (the amount of life insurance the employee’s family would receive if she passes away) may be for a fixed dollar amount or a multiple of the employee’s salary.  Employers may also offer the employee the option of adding supplemental life insurance coverage for which the employee pays the premiums.  Regardless of which type of coverage is obtained, the employer is the party that obtains the policy and deals with the life insurance provider.  Because the employee is not purchasing the life insurance directly, it is important for the employee and the employee’s family to understand the coverage provided through the employer, so that if the employee passes away, the beneficiaries will receive the insurance payments to which they are entitled.

At Trief & Olk, we see many cases where the employee or former employee passes away and the insurance company has improperly denied payment or the claim.  Typically, these cases come up when the employer uses a third-party intermediary to process the paperwork related to the life insurance: signing up new employees, processing change in beneficiary forms, and handling payment requests if an employee passes away.  Unfortunately, with a third party added to the mix, it becomes more likely that mistakes will occur and the claim denied:  often, paperwork is lost, key information about the employee provided to the life insurance company is incorrect or incomplete, and it is unclear who is accountable to the employee and the employee’s family.  Over the past few years, Trief & Olk has resolved similar denied claims for families without having to file suit, by carefully reviewing the paperwork sent to the employee or employee’s family and finding that the employer and/or life insurance company had not handled the life insurance coverage or payment properly.

To avoid these problems, it is advisable for the employee and family to understand the relevant details regarding the life insurance coverage well before any problem arises. When the employee first obtains coverage, the following steps are recommended:

  • Obtain a copy of any paperwork documenting the existence of the employer-provided life insurance, the amount of coverage, and the designated beneficiaries;
  • Obtain information regarding what steps beneficiaries must take in order to claim the benefit;
  • Obtain a copy of the documents describing the terms of the policy and/or the policy itself or become familiar with the basic information available through the employer’s website or employee benefits portal; and
  • Notify the next of kin (spouse, parent, child) that this coverage exists and where the documentation is stored, so they know to follow-up with the employer if the need arises.

If the employee becomes ill and is forced to leave his job, in many cases there is an option to continue the employer-provided life insurance coverage (and other employee benefits) after the employment ends.  The employee and family are often focused on dealing with the illness, not matters such as life insurance; however, it is important to find out from the employer (preferably before the employment terminates) whether any coverage continues after the employee leaves the company, and if so, what steps must be taken to ensure the coverage continues. “Don’t Lose Life Insurance Coverage When You Need It Most – When You Are Gravely Ill”

If you recently lost a loved one who had employer-provided life insurance for which payment was denied, you may have a claim if the employer and/or insurer did not properly process the claim.  The life insurance attorneys at Trief & Olk are available to answer your questions and represent you if life insurance claim has been denied.  Feel free to consult our website for examples of the many successes we have had when life insurance companies denied payment or call us directly to discuss how we may help you.