When is a Life Insurance Policy regarded as “in force”?

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I have an unusual situation regarding my deceased husband’s life insurance that I need some help with. My husband had a Variable Life policy that was in danger of lapsing at the beginning of 2013. Unfortunately, the policy lapsed before he could deposit the needed premium to keep it active. After it lapsed at the end of March, 2013, my husband went to the broker and applied for reinstatement (within 4 days of the lapse). My husband submitted the application and sent any required paperwork and the policy was approved on Friday May 3, 2013 (according to an e-mail obtained from the insurance company that was sent to the broker by the underwriter).
Unfortunately, my husband passed away on the evening of Sunday, May 5, 2013 (2 days after the underwriter approved the coverage), and the company was contacted the next morning (Monday May 6, 2013) by his ex-wife informing them of his death.
On May 18 (13 days after my husband’s death), I received a letter addressed to him (dated May 6 but postmarked May 14) indicating the policy had been approved and indicating the premium due, which it said was due within 30 days of the approval.
I called the company immediately and explained the situation and telling them he had passed away, and during the discussion they instructed me to send in the first premium as indicated in the letter. The company deposited the check and it cleared my bank. 3 weeks letter, I received a check drawn on the company’s account for the amount of the premium saying they would not pay the claim because he had already passed away as of the date of the letter (May 6), which they said was the “approval date”.
If the coverage was approved before my husband’s death and the since company told me to send in the premium (which they deposited) after knowing he had passed away, how can they decide they will not pay the claim ? . During this entire process, I never heard from the broker and never received a policy. I also never cashed the company’s check, so they still have the funds almost a year later.
My question is: when does a policy actually go into effect and isn’t the company advising me to send in and accepting the premium and depositing it (after knowing my husband had passed way) an acknowledgement that all of the requirements of the policy were met ?

Any help would be appreciated. This money was supposed to go into a trust for his children and I want them to get it. Thank you. Michelle in New Jersey.

life insurance New Jersey

Comments

5 responses to “When is a Life Insurance Policy regarded as “in force”?”

February 1, 2016

Terry A. McCarthy, CLU, ChFC

As tragic as the circumstances, I suspect that the answer that will be sustained will be the one that declares the policy was actually in force at the actual time the premium was received. Most policies contain language that says something similar to: “in consideration of the premiums paid…”. Premium is the inducement for the carrier to provide the protection and enter into the contractual agreement to provide coverage. We almost always encourage our life insurance applicants to send premium with an application to invoke any temporary insurance agreements (provisions for obtaining coverage while the application is considered for issuance). When the carrier accepts the application, and there are no counter offers or amendments, the premium payment causes coverage to become effective in most instances. I explain to my customers it is better to be insured while deciding than to take a chance, however small, that conditions will change during the underwriting process or that they may pass unexpectedly while waiting.

Nevertheless, you may indeed find legal advice helpful and I am certainly not giving legal advice. Insurance companies are very careful and they act and behave in certain ways because of the experience they have had defending their written contracts. Insurance laws are also under constant review in courts so I suspect you might find legal advice useful. Sorry for your circumstances and good luck with your pursuit of the best possible answer for you.
October 20, 2015

Stan Cox II

Michelle in New Jersey, What a sad story! I’m sure everyone sympathizes with you as I do, however there are rules that govern pretty much everything as you indicated that you are aware. So the answer to your question: When is a life insurance policy considered “In Force”? is that the policy is in force when all the delivery requirements are met and the first premium is paid.

In this case the policy was in force, but then lapsed thus it was no longer in force. Your husband applied for reinstatement, which reinstatement was approved according to your account, however the premium had not yet been paid, nor the approval been given by the insurer when your husband died. Therefore the policy was not in force on your husband’s death and the insurer is not obligated to pay the benefit.

Even if your husband had submitted the reinstatement premium with his application for reinstatement, since the company had not approved or accepted the reinstatement before your husband died the policy did not meet the requirements for inforceability. Had he submitted the premium and the company accepted and approved the reinstatement before he died then the policy would have been in force and the company would be obligated to pay the benefit.
September 8, 2014

Peggy Mace

This is probably a situation where you will want to get some legal advice. I have seen cases explained where it went both ways. The answer to your general question, however, is that the policy does not actually go into effect until the first payment is made and required delivery paperwork is received.

What happens so often during life insurance underwriting is that you are not speaking with the person who makes the ultimate decisions. The fact that they told you to send in the first payment sounds like a good move on their part, so that base would at least be covered. But the legalities have to then go by their teams who make those complicated decisions.

And far too often, auto generated memos go out without taking into account the whole situation. I say this not as an excuse for insurance companies, but just because we run into this a lot, where their letters have not caught up with current reality. If they had said your husband’s policy was in effect on the day of his death, I think you would have a strong case. But with it being an approval letter, and then how it went down afterwards, I could not say. It certainly cannot hurt to ask a legal expert who can advise you, though.

Best wishes and my condolences at this difficult time.
September 8, 2014

David Pipes

The situation you describe will require legal assistance to unravel. I think that your state insurance commissioner will also want to know what happened. I believe that if the policy has been placed in force, it is in force until it is cancelled. I suspect that you did not receive good advice when the home office told you to make the premium deposit; however, this is a serious legal issue.
September 8, 2014

Matt Benore

Michelle, first I am sorry for your loss. I recently lost my stepson so I fully understand the grieving you are enduring. My prayers and thoughts are with you and your family.

Regarding when a policy is in-force. A Life Insurance policy is in force when the delivery requirements along with the premium have been received during the delivery period time frame. For reinstatement’s, the same holds true, once they have approved and received the delivery requirements, the policy would be in-force. Since the approval date is the 6th, with the insured passing away before the approval date, it does sound like the claim would be denied.

I wish I could give you better news.
If there is anything I can help you with, please let me know. I will do my best to refer you or help you myself.

God Bless.

Matt Benore