Unfortunately, in terms of Louisiana life insurance claims or any life insurance claims really, the “contestable period” (or “contestability period”) is not good for policyholders or beneficiaries. The very word contestable brings up images of a fight, challenge, or dispute, which are the last things a beneficiary of a life insurance policy wants to hear after a loved one has died. And “contestable” is the last thing a life insurance policyholder envisions when purchasing the policy or paying monthly premiums. But the contestable period is in the fine print of almost all life insurance policies because it gives the life insurance companies an opportunity to avoid paying out the policy.
What is the Contestable Period in Life Insurance?
In terms of Louisiana life insurance claims, a contestable period (or a contestability period) is a 2-year period following the issuance of a life insurance policy in which the insurance company can “contest” the policy. So, if a life insurance policyholder dies within two years of signing the policy, then he or she dies within the “contestable period,” and the life insurance company will essentially “contest” or challenge whether it needs to pay out the policy. So, when a deceased policyholder dies while he or she is still within the 2-year contestability period, the life insurance companies will launch an investigation for any false statement or error made by the decedent in the efforts of denying the claim. There is no time limit for such an investigation, and, at the direction of the insurance companies, these investigations tend to be lengthy and intrusive.
If the life insurance company cannot find any errors or misrepresentations, then the insurance company must pay the death benefit claim, even if the policyholder passed away on the same day that he or she took out the policy. But typically, due to the complex and extensive nature of the life insurance application process (not to mention the tons of “fine print”), the insurer can find at least one error made by the deceased policyholder when completing the application. Then, the life insurance company will promptly deny the beneficiary’s claim and send out a denial letter with a check for a refund of the premiums paid.
Additionally, the 2-year contestable period also applies to when the policyholder is still alive. That is if the life insurance company discovers some information which it claims shows that the policyholder lied, this insurance company can attempt to cancel the policy during this contestable period, even while the policyholder is still alive.
Last, it is important to understand that the contestable period could restart if the policy lapses. In other words, if the policyholder were to stop paying his or her premiums, then the policy would lapse, meaning that it would no longer remain in place. However, often in these situations, the life insurance company will allow the policyholder to reinstate his or her policy and begin paying the premiums again. But unfortunately, the clock on the 2-year contestable period will start over at the time of the reinstatement, meaning the 2-year contestable period will run from two years after the reinstatement of the policy, not from two years after the initial writing of the policy.
What Happens After the Contestable Period of a Life Insurance Policy?
After the 2-year contestable period, the life insurance companies are no longer able to dispute a claim for a material misrepresentation and usually must then pay the death benefit to beneficiaries. Most likely, this means that the beneficiary will receive the full amount of the policy so long as the policy was in effect at the time of the death of the policyholder.
However, there still remain other bases for life insurance companies to deny a claim after the 2-year contestable period, such as fraud. Also, some policies have exclusions, which are situations written into the policy wherein a beneficiary will not be paid death benefits. And again, as detailed above, the 2-year contestable period could restart if the policy lapses, even if that lapse occurs after the original contestable period was past.
What Happens if the Life Insurance Company Claims to Have Found a Material Misrepresentation During a Contestable Period Investigation?
Unfortunately, in most cases, if the life insurance company discovers what it claims to be a material misrepresentation, then it will deny the claim outright. Again, this material misrepresentation could have nothing to do with the cause of death. For example, if a life insurance company found what it claimed to be a material misrepresentation regarding cancer, it would not matter that the policyholder died in a car crash. The life insurance company would still deny the claim for material misrepresentation if the policyholder passed away during the contestable period.
However, one alternative to outright denial for a material misrepresentation during the contestable period is that the life insurance company may pay out a lesser amount. This is not a settlement but rather a recalculation of benefits. Specifically, if the life insurance company decides that the material misrepresentation would have led to it still issuing the policy if it had known about the misrepresentation, but at a higher premium amount, then the life insurance company will pay the difference by simply deducting the premiums it would have charged if it had known the missing information. However, life insurance companies are much more inclined to decline outright since the deciding factor is their own interpretation of their own underwriting guidelines. Underwriting guidelines are the rules and requirements that a life insurance company provides for its agents and underwriters to use when deciding whether to write a policy for a prospective insured and for what terms and how much.
What is Post-Claim Underwriting?
As stated above, underwriting guidelines are the rules and requirements that a life insurance company provides for its agents and underwriters to use when deciding whether to write a policy for a prospective insured and for how much. The underwriting process itself is the process of deciding whether to write a policy for a prospective insured and for what terms and how much. Post-claim underwriting is the inappropriate process of deciding – after the death of the policyholder – whether to write a policy for a prospective insured and for what terms and how much.
Post-claim underwriting is inappropriate and unfair because it is simply is a way for the life insurance companies to find a way (by investigation) not to pay out the life insurance claim when it should have done that investigation prior to issuing the policy. Louisiana law is clear that “an insurer has an affirmative duty to verify, through a reasonable investigation, whether a claim was actually excluded from coverage, and when an insurer chooses to resist its contractual obligation based upon a supposed defense, which a reasonable investigation would have proved to be without merit, it acts at its peril and renders itself liable for statutory penalties and attorney’s fees.”
Get Help from an Experienced Life Insurance Claim Lawyer
It can be devastating for a grieving family who has dutifully paid life insurance premiums for exactly for such a difficult time to find out that, after such a long delay, the insurance company is denying its claim for a material misrepresentation during the contestable period. If you have been denied a life insurance claim, you need the assistance of a qualified, experienced life insurance attorney. Most life insurance companies will not pay a life insurance claim that they have previously denied until the beneficiary is represented by an attorney willing to pursue penalties and attorney’s fees against the insurance company.
Peter Diiorio of New Orleans Legal, LLC is an experienced Louisiana life insurance claim attorney representing insureds and beneficiaries in life insurance claim disputes against life insurance companies. Mr. Diiorio is happy to handle your case on a contingent fee basis, which means that all legal fees are taken at the end only if there is a recovery of life insurance proceeds for you. Please contact us now at (504) 897-5580 to schedule a free face-to-face, Zoom, or telephone consultation, and let us handle the life insurance company for you.
