Do my children benefit from my life insurance if I have not disclosed the terminal illness?


Dear Penny,

I have a life insurance policy worth $1.5 million with my two children as beneficiaries. I have a degenerative condition called Spinocerebellar Ataxia Type 1, which was diagnosed a year before the policy was underwritten. It is a rare disease that is not well known.

Illness will bedridden me in the end. When I die, will the company pay the death benefit? Or hold it when I’ve died of a degenerative disease? As far as I remember, there was no place to indicate Ataxia on the registration form. There were questions about multiple sclerosis, which is better known.

I want to end the policy if there is no benefit to it. I was diagnosed in 2014 and took out the policy in 2015.

– Desperate single mom

Robin Hartil [ The Penny Hoarder ]

Dear Desperate,

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

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

A denial is more likely to happen when someone dies within the two-year contestability period that is generally in effect from the time you get your policy. Basically, if you die within that two-year window, the insurer can investigate your claim for “material misrepresentation.”

This could include outright lies on an application, such as lying about a cancer diagnosis or a drunk driving conviction, or saying you work at an office when you really have a dangerous profession. But material misrepresentations can also result from honest mistakes. Some people forget to mention a prescription or procedure they had years ago on the application, simply because they forgot about it.

The company may deny the request if you die during the contestability period and it finds evidence of material misinformation, even if your death has nothing to do with the information you failed to disclose. If you lied about being diagnosed with cancer and then died after being struck by lightning, they could still deny your claim. The overwhelming majority of claims will still be paid when someone dies during the contestability period. It’s just that the insurer will usually give them a little more attention.

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

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“A life insurer could technically deny a claim after the contestability period if it suspected the insured of insurance fraud or if the insured knowingly provided misrepresentations on the application,” Jason said. Veirs, president and owner of Insurance Experts Solutions Inc., a San Diego-based insurance broker.

Your situation is delicate. Even if the request was not specifically about your illness, it probably included questions where you had to disclose any conditions not mentioned.

Most applications include detailed questions such as: “Have you ever been treated or told by a member of the medical profession that you have high blood pressure, heart problems or joint problems?” or catch-all questions such as: “Apart from what you have already disclosed, in the past five years, have you consulted or been treated by any other practitioner or doctor, or received any other treatment that has not been disclosed? »

“Most of these questions will search for any sort of medical history on the app,” Veirs said.

Again, it would be unusual for your beneficiaries’ claim to be denied given the time that has elapsed since the policy was issued. You’ve spent years paying the premiums for this policy. It is very likely that your children will receive your death benefit.

If you agree with these odds, you can continue to pay policy premiums, knowing that your money is unlikely to be wasted. It’s especially important, however, that you don’t let the policy expire. If the policy expires and you reinstate it, you will trigger a new two-year contestability window.

The big question you need to ask yourself is, would the money you’re spending on bonuses make your life easier right now? I’m asking because you signed your letter as “Desperate Single Mom.” If you are struggling right now and your children are adults and on their own, you may not need life insurance at all. The purpose of insurance is to protect against financial loss. There’s nothing wrong with deciding that you need money in your pocket now more than your children ever need a life insurance payment.

My final piece of advice isn’t for you, Writer, because we can’t go back in time. But for all readers buying a life insurance policy: it can be tempting not to disclose a diagnosis on your request, especially if you’re not sure if it’s necessary. But it is in your 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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