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Will my children get my life insurance if I don’t report a terminal illness?

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Dear Penny,

I have a $1.5 million life insurance policy with my two children as beneficiaries. I have a degenerative condition called spinocerebellar ataxia type 1 which was diagnosed a year before I bought the policy. This is a rare disease that is little known.

Illness will eventually confine me to bed. If I die, will the company pay a death benefit? Will it be contained if I die of a degenerative disease? As far as I can remember, there was no place to mention Atax on the registration form. There were questions about the better known multiple sclerosis.

I want to stop politics if it doesn’t work. I was diagnosed in 2014 and bought the policy in 2015.

– Desperate single mother

Dear Desperate,

I cannot promise you with 100% certainty that your policy will pay a death benefit. But, in all probability, your children will receive this money without any problems.

For starters, it’s actually quite rare for insurers to delay life insurance claims or deny them altogether. According to the American Council of Life Insurers, life insurance companies disputed about $600 million in new claims in 2019. That’s less than 1% of the $78 billion paid out to beneficiaries that year.

A waiver is most likely to happen if someone dies within the two-year grace period, which usually runs from the time the policy is taken out. Essentially, if you die within this two-year window, the insurer can investigate your application for a “material misrepresentation”.

This could include blatantly lying on the application, such as lying about a cancer diagnosis or a drunk driving conviction, or claiming you have a desk job when you actually have a dangerous job. But material misstatements can also result from honest mistakes. Some people don’t mention a prescription or procedure they had years ago on their application simply because they forgot about it.

The company can deny a claim if you die during the disputed period and it finds evidence of material misrepresentation, even if your death has nothing to do with the information you didn’t disclose. If you lied about a cancer diagnosis and then died from a lightning strike, they may still deny your claim. The vast majority of claims will still be paid if someone dies during the contest period. It’s just that the insurer usually pays more attention to them.

In your case, apparently, the two-year period of competition has long passed. It would be highly unusual for an insurer to investigate your claim in the circumstances you describe. But it can still happen if the company suspects fraud.

“A life insurance carrier can technically deny a claim after the contest period if it suspects the policyholder has committed insurance fraud or if the policyholder intentionally misrepresents the application,” said Jason Weirs, president and owner Insurance Experts Solutions Inc.insurance brokerage in San Diego.

Your situation is complicated. Although the application did not specifically ask about your medical condition, it likely included questions asking you to disclose any medical conditions you did not mention.

Most applications include detailed questions such as: “Have you ever been treated or told by a medical professional that you have high blood pressure, heart or joint problems?” or general questions such as, “In the past five years, have you seen or been treated by any other practitioner other than the one you have already disclosed, or received any other treatment that was not disclosed?”

“Most of these questions will reveal any health history in the app,” Weirs said.

Again, it would be unusual for your beneficiary’s claim to be denied given how much time has passed since the policy was issued. You have spent years paying premiums on this policy. It is very likely that your children will receive your death benefit.

If you’re okay with those odds, you can continue to pay your premiums on your policy, knowing that your money probably won’t be wasted. However, it is especially important that you don’t lose your policy. When the policy expires and you renew it, you will start a new two-year contest window.

The main question you need to ask yourself is, would the money you spend on premiums make your life easier? I ask because you signed your letter as “Desperate Single Mother”. If you are struggling now and your children are grown and self-sufficient, you may not need life insurance at all. The purpose of insurance is to protect against financial loss. It’s perfectly normal to decide that you need money in your pocket more than your children ever need a life insurance payout.

My final advice is not for you, Writer, as we cannot turn back time. But for all you readers shopping for a life insurance policy: It can be tempting not to disclose your diagnosis on your application, especially if you don’t know if it’s necessary. But it’s in your best interest to err on the side of disclosure.

The purpose of buying life insurance is to protect your family financially. Make sure you know for sure if the policy you are buying will actually provide protection.

Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].


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