To hang on to revenue and profits, some insurance companies act in bad faith by reducing insurance payouts and denying claims on life insurance policies, even if an insured policyholder has paid on the policy for many years.
Bad Faith Claim Denials
A life insurance policy is a contract which represents a promise by an insurer to act in “good faith and fair dealing” with a policyholder. To comply with this promise, the insurer must uphold the provisions of the policy and ensure that the policy holder’s rights to receive benefits under the policy are upheld. When an insurer fails to meet those duties without proper cause, the insurer can be found liable for acting in bad faith. Common acts of bad faith for denied life insurance claims include:
When a policy holder dies and a beneficiary files a claim for death benefits, the insurer may try to find errors or misrepresentations that would void the policy’s validity. With something as minor as a misspelled name or unsigned form, the insurer may attempt to cancel the policy, even if premiums are paid in full.
Insurance providers are required to process claims within a reasonable time period. During a claim investigation, the insurer must conduct a thorough review of policy payments, medical records, and policy provisions without unnecessary delays. Delayed claim processing and payments without reasonable cause often signal attempts to underpay or deny a claim in bad faith.
Most people make monthly life insurance premium payments for many years without problems. Occasionally, due to illness towards the end of life, an insured may fail to pay his/her monthly premiums. Even though the insured may have paid on the policy for 20 or more years, some insurers may lapse the policy due to a few missed payments.
Insurers may misrepresent policy terms, requirements, and provisions to policyholders to avoid claim payouts. Insurance policies are written with complex terminology to favor the insurance company, rather than the policyholder. Misrepresenting relevant policy provisions can give rise to a bad faith insurance claim.
Life insurance policies always contain coverage exclusions. Insurers commonly use ambiguous exclusions to deny claims. In some cases, claim denials are legitimate, while others represent a distortion of the facts or the terms of the policy which constitute bad faith actions by the insurer.