Chapter 13 - Life Claims

Question 1

Policy Provisions Applicable to Claims

Answer 1

Misstatement of Age/Gender Provision
Incontestability Provision
Suicide and other Exclusion Clause
Amendments
Change in Health Statement

Question 2

Policy Provisions Applicable to Claims - Misstatement of Age/Gender Provision

Answer 2

Generally, if the insurer does not discover the misstatement until after the death, the amount payable is adjusted to the amount the premiums paid would have purchased at the correct age or sex according to the company premium rates at the time of issue. If found before death, the insurer will usually give the option to pay the adjusted premium or adjust the face amount.

Question 3

Incontestability provision

Answer 3

Describes the time limit within which an insurer has the right to void the contract on the ground of material misrepresentation in the application.

Question 4

Suicide and Other Exclusion Clauses

Answer 4

These riders usually will state the insurer will pay no benefit if death is a result of the activity excluded and will pay the greater of premiums paid or the cash surrender value.

Question 5

Suicide Clause

Answer 5

Usually 2 years. If the policy lapses and is reinstated, the period is still considered to have begun on the date when the original policy was issued. In Canada, the exclusions period begins again from the date it was reinstated.

Question 6

Decision to not pay on a suicide exclusion is not considered a rescission of coverage but instead

Answer 6

Considered to be an affirmation of the validity of the contract by applying the limited-benefit-for-death-by-suicide provision.
Burden of proof is on the insurer to prove it was suicide.

Question 7

Contract Amendment

Answer 7

Modification to the terms of a contract.

Question 8

Change in Health Statement

Answer 8

If the insured does not notify the insurer of a material change in health prior to the delivery of the policy, the insurer can deny a subsequent claim if the death occurs during the contestable period. The insurer would have to show:

1. the change in health directly affected the degree of risk for the case
2. the proposed insured knew of the change in health
3. the change in health statement was unambiguous.

Question 9

Waiver

Answer 9

The act of intentionally or knowingly relinquishing or abandoning a know right, claim, or privilege, either express or implied. For an insurer to fail to act upon information it had when it originally underwrote the case can cause it to surrender the right or privilege to contest on that basis

Question 10

Express waiver

Answer 10

Oral or writer. It is a clear statement that a right is given up. I.e., saying a policy will not lapse due to non-payment.

Question 11

Implied waiver

Answer 11

Not created by words but rather through the conduct of the waiving part that clearly indicates that a right will not be enforced. I.e., A premium rec’d after the grace period w/ policy reinstated.

Question 12

Waiver by silence

Answer 12

Created when there is a duty to speak. I.e., is an insurance company learns a client is not disabled but continues to pay disability benefits.

Question 13

Estoppel

Answer 13

An equity principle applied to life insurance contract law. If by your actions, words, or silence, another person has relied on or taken action that he would not have otherwise taken to his detriment, your defence is waived and you are prohibited (estopped) from later defending, denying or rescinding your original course of action.
I.e., waiver is action and estoppel is the legal doctrine.

Question 14

Determining coverage - the claim analyst will use the following steps:

Answer 14

1. Determine the date coverage was issued, which includes a review of the policy and company record to determine when the application was written and when it was issued.
2. Verify the coverage was in force when the loss occurred by checking the company’s administrative system to verify the initial premium was paid and the policy put in force. Or, if the policy is not in force, determine if there coverage in force under the provisions of a temporary agreement.
3. Check to see if the premiums are paid to date. If not, check to determine if the policy is in the grace period, in a lapsed status, or currently being considered for reinstatement
4. Determine if the policy is contestable.

Question 15

Policy Rider - Waiver of Premium (WP)

Answer 15

Specified that if the insured becomes totally disabled, the insurer will give up, or waive its right to collect premiums that become due while the insurer is totally disabled.

Question 16

Policy Rider - Accidental Death Benefit (ADB)

Answer 16

It provides for a death benefit in addition to the basic death benefit should the insured die as a result of an accident. ADB riders can have limitations such as expiration when the insured reaches certain ages, commonly 65 or 70.

Question 17

Accelerated Death Benefit

Answer 17

Can be separate rider or part of the basic policy. Must met the insurers definition of having a terminal illness, dread disease, or condition requiring long term care.

Question 18

Escheat

Answer 18

A term that means the proceeds become the property of the state until the beneficiary is found and claims the proceeds.

Question 19

Interpleader

Answer 19

This process allows the company to pay the policy proceeds to a court and ask the court to determine the proper recipient.
This can happen when there is disputes between two or more named beneficiaries.

Question 20

Conditions of Temporary Insurance Agreement

Answer 20

1. that the coverage is temporary
2. when the coverage becomes effective
3. the conditions that must be met for the coverage to become effective
4. any limitations, such as amount limitations (often the receipt limit the amount available to specific dollar amount that can be less than the amount applied for)
5. when the coverage will end.

Question 21

The binding premium receipt

Answer 21

Provides temporary insurance coverage that becomes effective from the time the applicant receives the receipt and generally remains in effect until the earliest of the following occur:

1. The insurer issues the applicant a policy
2. The insurer declines the application
3. The insurer terminates or suspends the coverage under the receipt
4. After a specified length of time usually 45-60 days, expires.

Question 22

Conditional Premium recipt

Answer 22

Specify certain conditions that must be met before the temporary insurance coverage provided by the receipt becomes effective. Generally 2 types:

1. Approval premium receipt -> temporary insurance when the insurer approves the proposed insured as a standard or better-than average risk. If the insured dies before the application is approved the receipt provides no coverage.
2. Insurability premium receipt -> temporary insurance coverage on condition that the insurer finds that the proposed insured was insurable as a standard risk on a certain date specified in the premium receipt. Should the proposed insured die before the application is approved, the insurer completes the underwriting and if insurable than the death benefit is payable.

Question 23

Material Misrepresentation

Answer 23

An untrue statement of fact on an application that is relevant to the insurer’s evaluation of the risk presented by the proposed insured. It is material is it would have:
1. charged an increase premium for the added risk
2. excluded coverage for the added risk
3. reduced the amount of coverage
4. declined to issue a policy
Can also be financial

Question 24

Most jurisdictions require that an insurer prove that the misrep contained all of the following elements

Answer 24

1. The applicant or proposed insured failed to disclose or misrep’d a fact
2. The fact was within the person’s knowledge at the time the misrep was made
3. The fact was material, or relevant, to the insurer’s acceptance of the risk.

Question 25

Examples of misrep

Answer 25

1. Health - failure to disclose a known medical condition
2. Occupation or avocation - failure to disclose a dangerous job or hobby.
3. Habits - failure to disclose past abuse of alcohol of controlled substance.
4. Traffic violations - misstatements of the number and/or severity of moving violations or collisions.
5. other insurance applications denied or rated - concealing information about insurance application that have been denied, assigned a high-risk class, or charged an additional premium.

Question 26

Barriers to contest on the groups of misrep within the contestable period

Answer 26

1. An agent’s knowledge of a misrep can be imputed to the insurer
2. The insurer delays in acting on its knowledge of a misrep
3. The insurer fails to inquire about ambiguous answers provided on the app
4. The insurer does not provide the policy owner with a copy of the insurance application.

Question 27

Red Flags for suspecting fraud include the following:

Answer 27

1. Requesting an amount of coverage slightly less than the amount of coverage that would require the proposed insured to undergo a physical examination and/or other specific underwriting requirements.
2. discrepancies between the applicant’s signature on the application and other documents, such as the examination form.
3. Answers to question on the application that appear to have been altered
4. Signs of speculation, such as a proposed insured requesting an unusually large amount of coverage based on his income or an amount that is inconsistent with the potential financial loss.

Question 28

Claim Fraud

Answer 28

An action by which a person intentionally uses false information in an unfair or unlawful attempt to collect benefits under an insurance policy.

Question 29

Calculating the amount of policy benefit payable - the claims adjuster calculates the amount of policy proceeds to which the beneficiary or payee are entitled too. Proceeds typically include:

Answer 29

1. The basic death benefit
2. Any additions to the basic death benefit
3. Any deductions to the basic death benefit

Question 30

Additions to the basic death benefit could include

Answer 30

1. paid-up additional insurance
2. ADB
3. excess premium paid in advance
4. policy dividends declared but not yet paid
5. interest on delayed claims payment
6. loan interest paid in advance

Question 31

Deductions from the basic death benefit could include

Answer 31

1. Premiums due but unpaid during the grace period
2. policy loans
3. Interest on any policy loans
4. Accelerated death benefits that have been paid.

Question 32

Typical settlement options include

Answer 32

1. Interest option - the insurer invests the proceeds and periodically pays interest on the proceeds
2. Fixed period option - proceeds are paid by the insurer in equal installments for a specified period of time.
3. Fixed amount option - Proceeds are paid in equal installments at a stated amount until the proceeds, including any accrued interest, are exhausted
4. Life income option - proceeds are paid over the payee’s lifetime in periodic installments.