Is There an Obligation to Reinstate a Life Insurance Policy?

Life insurance issues can be complex, both financially and legally, and even emotionally. Like all forms of insurance, life insurance policies provide protection against an unexpected future event. But one unique feature of life insurance is that the uncertainty surrounding an obligation to pay does not necessarily involve an “if” but a “when.” Someone who purchases auto or homeowner’s insurance may never suffer a loss and never file a claim despite years of paying premiums. But every life insurance policyholder will pass away at some point, and if their policy remains in force and terms are complied with, then the policy should pay benefits.

For that reason, the actions necessary to keep a life insurance policy in force can be crucial. It is important for every policyholder to understand what they need to do to remain in compliance with policy terms and what can happen if they neglect an obligation. If a policyholder fails to pay premiums, laws in Florida and elsewhere set requirements for policy cancellation and reinstatement, but it can be confusing to understand how these requirements apply.

At Ver Ploeg & Marino, our legal team assists policyholders with a wide range of complex insurance disputes, so we know insurance companies are unlikely to give policyholders the benefit of the doubt unless legally required to do so. Insurers will split hairs and make intricate legal arguments and bold assertions to avoid paying benefits. Policyholders should understand their rights and seek legal assistance if an insurance company fails to honor its obligations under the law. Our team cannot provide legal advice in a blog because advice must be tailored to the facts of a specific situation. However, we can provide background information on the obligations associated with life insurance.

Overview of Life Insurance

Life insurance is among the oldest forms of insurance, with evidence of its practice in Ancient Rome and Egypt. Policies were created in the Royal Exchange in London in the 1500s. Life insurance provides a monetary benefit upon the insured’s death. The person who is insured may be the person who took out the policy (the policyholder), or it could be someone else entirely. When the insured person dies, payment is made to the beneficiary named in the policy. Most of the time, the beneficiary has no rights under the policy, but policies can be written to specify that the beneficiary is irrevocable, in which case the beneficiary must approve any changes or borrowing against the policy.

In the modern life insurance industry, policies are divided into two types. Term life insurance provides coverage for a specified term. If the insured person dies during the term, the policy pays benefits; if the term ends and the insured person is still alive, the insurance company’s obligations end. Parents often purchase this type of insurance to protect their children until the children are old enough to support themselves.

Permanent or whole life insurance is more costly because it provides coverage that lasts until the insured dies. The expectation is that the policy will pay benefits, provided premiums are paid on time.

Contractual Limits and Regulation of Life Insurance

The potential for abuse has led to many limitations in policies and regulations regarding policy terms. Insurance companies generally reserve the right to investigate a claim and deny benefits if they determine that information was misrepresented. In addition, the policy terms will often contain significant exclusions, such as refusing to pay out if the insured committed suicide within the first two years of taking out the policy.

Because insurance companies have become notorious for denying benefits, regulators stepped in and established protections for consumers. In Florida, for instance, insurance policies must include a grace period of at least 30 days for premium payments. Although the insurer may charge interest if you are late paying a premium, the insurer cannot terminate the coverage during the grace period. In addition, if a life insurance policy covers a person who is at least 64 years old, the insurance company cannot terminate a policy for nonpayment of premiums unless the company mails a notification about the lapse in coverage to the policyholder and any secondary person designated in the policy. This notice must be sent after the grace period ends and at least 21 days before the lapse would take effect. This extension of the grace period does not apply if the policy is paid regularly by an agent, a regular draft on a bank account, or a credit card.

Consumers also have a window to review and cancel a policy after purchase.

Policies must also specify that a policyholder may apply to have the policy reinstated at any time within three years of the missed payments. However, the insurer is not obligated to reinstate the policy if:

• It has been surrendered for the cash value
• The term has expired
• The policyholder has not paid all the past due premiums with interest
• The policyholder has not provided evidence of “insurability” that satisfies the insurance company

In many cases, the final requirement listed can prevent reinstatement of a life insurance policy. The insured may be required to undergo a medical exam and answer medical questions; if the insurance company is not satisfied with the results, it is not obligated to reinstate the policy.

Details Matter When Insurance Benefits are Contested

It can be challenging to determine precisely when a life insurance policy lapses and whether the policyholder has met the requirements for reinstatement. If the policy does not spell out the terms in detail, the court often decides these issues. For instance, some courts have held that policy lapses are calculated from the date a notice is mailed, while others have ruled that the lapse in coverage is determined by the date the policyholder receives the notice.

If you have questions or are disputing an issue with an insurance company, the insurance attorneys at Ver Ploeg & Marino may be able to assist. We are deeply familiar with the insurance industry and use that knowledge to help policyholders receive fair treatment and appropriate benefits under their policies. For a confidential consultation, just call us at 305-577-3996 or contact us online now.

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