Trief & Olk’s life insurance attorneys frequently encounter scenarios where the insured has missed premium payments at the end of their life due to serious illness or other causes of incapacitation, leading to the policy lapsing – and leaving the beneficiaries without the proceeds the insured intended them to receive. Unfortunately, this can occur after the insured had been paying premiums regularly for decades, only missing the payments towards the end of their life when the insured was unable to manage their finances. The missed payment does not, however, necessarily mean that the beneficiary cannot claim the policy proceeds.
The first way to protect against the lapsing of a policy under these circumstances is for the insured to purchase a waiver of premium rider at the time the policy is issued. This type of rider provides (at an additional cost) the insured with peace of mind by eliminating the burden of paying premiums if the insured becomes too ill to work (and therefore unable to afford the premiums) or is incapacitated and unable to manage their finances. Ideally, where a waiver of premium provision is in place, the insured or their family would provide documentation to the to the insurance company of the relevant medical details before the insured passes away to ensure that the requirements for the waiver of premium provision are met. If the information is not provided before the insured’s death, however, the insurance company may (and sometimes must) consider the information after the fact.
Even without a waiver of premium rider, the beneficiary may have other options to challenge the cancellation of the policy if the insured was unable to handle their finances at the end of their life. The beneficiary first should ensure that the premium notices were sent to the insured on time and to the correct address. Under New York law (and the law of other states, and frequently pursuant to the terms of the policy itself), the insurer must send the insured a notice that the premium is due within a specific timeframe and, if the payment was missed, provide a grace period giving the insured another chance to pay the premiums owed. If the notice was not sent timely or the grace period not provided, the beneficiary can challenge the cancellation on that basis.
Second, the beneficiary may be able to prove to the insurance company evidence that the insured was not able to manage their finances due to being incapacitated, and therefore that the non-payment should effectively be excused. Insurance companies are not required under law to consider evidence of the insured’s incapacitation (unless there is a waiver of premium provision) but Trief & Olk has assisted several clients recently in proving that the insured was unable to manage their finances, resulting in the insurance company’s determination to pay the death benefits.
If you have had a life insurance claim denied to the policy’s lapse for non-payment of premiums, the life insurance attorneys at Trief & Olk are available to answer your questions and represent you if there is a basis to challenge the denial. Feel free to consult our website for examples of the many successes we have had relating to payment of life insurance benefits or call us directly to discuss how we may help you.