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- Lump sum - The entire amount of the benefit may be paid at one time, allowing beneficiaries to use these funds to pay outstanding expenses or invest them as they choose.

- Annuity - A benefit may be paid to beneficiaries in installments, providing regular income for a certain number of years. This allows beneficiaries to not only receive the money they need on an annual basis, but they will also receive interest on funds that have not been paid out. However, while life insurance benefits are not taxable, interest earned on these benefits is considered taxable income.

- Payout checkbook - Some insurers will hold benefit funds for beneficiaries while allowing them to withdraw money as needed by writing checks. Funds held by an insurer may also generate interest until they are withdrawn.

- Life income - Some plans may allow beneficiaries to receive a fixed monthly income based on the amount of the benefit, their age, and their life expectancy. The beneficiary will receive a guaranteed amount for the rest of their life, regardless of whether they die before or after they reach the age to which they are expected to survive.

- Pre-death payments - While life insurance benefits are usually paid after a person’s death, in some cases, they may be available while a person is still alive to offset the costs of medical care for a terminal illness.

About the Author: Attorney Ken Apicella is a founding partner of DGAA focusing in the areas of personal injury, employment, insurance coverage disputes, and civil litigation. Ken earned his J.D. from DePaul University College of Law in 1999. He has been named a SuperLawyers Rising Star and a Forty Illinois Attorneys Under Forty to Watch. Ken has written and lectured for the Illinois Institute for Continuing Legal Education and regularly serves as a moderator at Northwest Suburban Bar Association's Continuing Legal Education seminars.

The insurance industry is known for having incredibly complex contracts, and life insurance is no exception to this rule. As you might expect, the reason for this is money. According to statistics from the Insurance Information Institute, life insurance is a multi-billion dollar industry, and the companies want to keep it that way. 

One of the ways that life insurance companies do this is by fighting against paying valid claims. Money they do not have to pay out is money that they can ultimately keep for themselves, and even just delaying the payments can be profitable for them. Life insurance companies have two main tools for insurance claim disputes, policy cancellations and policy exclusions.

Policy Cancellation

A policy cancellation is exactly what it sounds like. The insurance company cancels a claimant's policy in order to avoid paying out a claim. This is a particular problem during the first two years of the policy's life, which is known as the contestability period. During this period, the insurance company may examine the policy looking for misrepresentations or omissions, and then cancel the policy if they find any. They even have the option of doing this after a person has already made a claim, and they are allowed to cancel regardless of whether the omitted information has anything to do with the actual cause of death.

A similar issue, but one that can last beyond the contestability period, is the material misrepresentation clause. This clause allows the insurer to cancel the policy at any time if they discover a lie or omission that would have caused them to not issue the policy in the first place. However, even people with perfectly accurate applications are not safe from having their claims contested.

Exclusions

In cases where the person's application cannot be contested, insurance companies may still attempt to avoid paying out for claims based on policy exclusions. These exclusions are specific events or actions that the insurance company has excepted from the policy. There are a variety of different policy exclusions that insurers may use, and they vary from policy to policy, but they may include:

- Dangerous activities like skydiving;
- Suicide;
- Alcohol and drug use; and
- Illegal activities.

The exact limits of these exclusions can depend on the precise policy language. For instance, some policies’ exclusions for alcohol and drug use exclude only illegal substances, while others exclude legal ones too. This can be especially complicated because some policies require the substance to be the cause of the death, while others only need the substance to be in the person's system at the time of death.

Life insurance contracts are complicated legal documents, and the insurance company is going to have a lawyer on their side. If you want to even the odds, contact a Palatine life insurance attorney today. Our firm assists people in insurance disputes all over the northwest suburbs, including in towns like Inverness, Deer Park, Barrington, Arlington Heights, Schaumburg, Des Plaines, Rolling Meadows, Crystal Lake, and Buffalo Grove.

About the Author: Attorney Ken Apicella is a founding partner of DGAA focusing in the areas of personal injury, employment, insurance coverage disputes, and civil litigation. Ken earned his J.D. from DePaul University College of Law in 1999. He has been named a SuperLawyers Rising Star and a Forty Illinois Attorneys Under Forty to Watch. Ken has written and lectured for the Illinois Institute for Continuing Legal Education and regularly serves as a moderator at Northwest Suburban Bar Association's Continuing Legal Education seminars.

Many people carry life insurance or accidental death and dismemberment (AD&D) policies. These policies, which people can acquire through their employer or on the open market, may pay benefits in cases of accidental death. Unfortunately, life insurance policies comprise an industry worth hundreds of billions of dollars, according to a report by the U.S. Treasury, and insurance companies have strong incentives to pay out as little as they can in benefits.

Often, that means denying legitimate life insurance claims on the basis of a “policy exclusion.” Policy exclusions are exceptions that insurance companies place into contracts that exempt certain situations from qualifying for payment. Common policy exemptions include suicides and deaths occurring within one year of the policy’s start. Companies can use these sorts of exemptions as pretexts for denying the payment of benefits.

Contesting a Denial

Even after the insurance company denies the claim, beneficiaries do have tools to appeal the decision. However, depending on the law governing the insurance policy, the tools may be expansive, or more limited in nature. For instance, plans through a person’s employer are often covered by the Employee Retirement Income Security Act (ERISA). ERISA places strict limits on how appeals take place.

Beneficiaries must appeal the decision through a special ERISA administrator before they can move into the regular court system. Beneficiaries with denied claims would do well to seek out a lawyer before filing their ERISA appeal because the actions that take place at that appeal can have strong impacts on a court case. Courts handling ERISA litigation often use evidence from the appeal when making their decisions. That means that if something is left unmentioned at that stage, it can be very difficult to convince the court to consider it later.

Plans purchased by an individual, rather than provided by an employer, will likely be governed by state law instead of ERISA. While this law is usually less restrictive, individuals should still be cautious when dealing with insurance companies. In state law cases, the beneficiary will likely sue the insurance company in an attempt to prove that their cases does not actually fall into the policy exclusion that the company is claiming.

If you have been the victim of a wrongful denial of a life insurance claim, get a written statement of the reasons for the denial, and seek help from an Illinois insurance attorney. Our firm serves clients across the northwest suburban area, including Schaumburg, Palatine, and Crystal Lake.

About the Author: Attorney Ken Apicella is a founding partner of DGAA focusing in the areas of personal injury, employment, insurance coverage disputes, and civil litigation. Ken earned his J.D. from DePaul University College of Law in 1999. He has been named a SuperLawyers Rising Star and a Forty Illinois Attorneys Under Forty to Watch. Ken has written and lectured for the Illinois Institute for Continuing Legal Education and regularly serves as a moderator at Northwest Suburban Bar Association's Continuing Legal Education seminars.

By Ken Apicella
kca@dgaalaw.com
(847) 934-6000

A recent probe of insurance companies conducted by New York State’s Department of Financial Services revealed that, nationwide, insurance companies failed to pay an estimated $1.1 billion in life insurance to beneficiaries. The issue stems, in part, from a lack of communication between policyholders and beneficiaries. If the policyholder never informed the beneficiary that they took out a life insurance policy, the beneficiary would not know to file a claim. This causes problems because insurance companies rely on beneficiaries to report when someone dies in order to claim their benefits.

At least, that used to be the case. Following this probe and similar investigations across the country, including in Illinois, insurers are starting to follow a different set of rules. For instance, in New York, Governor Cuomo signed a law that requires insurers to make routine searches of a death database in order to determine if any new deaths matched policyholders, so that they could start the process of finding that person’s beneficiary.

The Governor introduced this law in order to put to rest the apparently common practice of using such databases to track the deaths of people to whom the insurance company owes monthly checks, without using those same databases to track the deaths of policyholders.

The investigation also prompted more stringent enforcement of rules requiring insurers to turn unpaid benefits over to the state in some circumstances. Many states run unclaimed property departments. These departments hold on to the property, and then it becomes the beneficiary’s burden to track it down. Fortunately, with some careful planning, policyholders and beneficiaries can avoid problems like this.

The easiest way to make sure your loved ones do not have to spend time tracking down an insurance policy is with communication. If you take a life insurance policy out on yourself, tell the beneficiary. While some people can find it unpleasant to discuss or difficult to go into the details of how much they chose to purchase, you do not need to do that. It does not have to be a long, drawn-out conversation. Even just letting them know that you took out a policy, as well as which insurance company they should talk to if necessary, can be helpful.

If you have found yourself involved in an insurance dispute, contact a Palatine insurance attorney today. Call 847-934-6000 to speak to a member of our team. We serve many northwest areas including Rolling Meadows, Chicago, Crystal Lake, Inverness, and other nearby communities.