Life and Disability Insurance Flashcards
Objectives of traditional life insurance
i. Replace permanently lost income for dependents to continue to utilize
ii. Leave an inheritance
iii. Protect business operations
iv. Employee benefit
Types of traditional life insurance policies
i. Term – renting a policy for a term of years
ii. Permanent/cash value
1. Whole life – fixed premium
2. Universal life – fixed or flexible premiums
a. When fixed premium, the policy may become underfunded or over funded
Benefits of traditional life insurance
i. Tax-free distribution to beneficiaries
ii. Avoids probate – EXCEPT dispute about beneficiary (results in an interpleader)
iii. Breaks up the premium
Gaunt v. John Hancock Mutual Life Insurance Company
Plaintiff completed life insurance premium and chose effective date as “date of completion of Part B,” and paid his first premium with his application. He died before the life insurance company completed the approval process.
In some circumstances, a life-insurance policy can be effective if an applicant satisfies the application requirements but dies before the insurance company approves the application.
Insurable interest
(1) love and affection or (2) lawful and substantial economic interest
Ryan v. Tickle
Two funeral home co-owners had a joint life insurance policy on one another, and the survivor received the proceeds. When one partner died, his wife sued for the proceeds, alleging the other partner didn’t have an insurable interest.
The heir of an insured decedent does not have standing to bring a lawsuit challenging an insurance-policy beneficiary’s insurable interest in the life of the insured decedent. Only the insurer has standing to challenge the beneficiary’s insurable interest. Further, the insurable interest test is met at the time the policy is issued, regardless of whether the beneficiary has an insurable interest at the time of the insured’s death.
Grigsby v. Russell
Man sold his insurance policy to his doctor in exchange for a $100 and an agreement that his doctor would pay the premiums on the policy. When the man passed away, the insurance company asked the court if the proceeds should be paid to the doctor or to the man’s estate.
The holder of an insurance policy on the holder’s own life may assign the policy to an individual having no insurable interest in the holder’s life for consideration, giving the individual assignee, rather than the personal representatives of the holder’s estate, the right to collect the proceeds of the policy.
Amex Life Assurance Company v. Superior Court
Man had HIV/AIDS and on his application, denied that he did. He hired another man to undergo the required medical exam, and the doctor didn’t request ID, but noted the patient was “unhealthy or older than stated age.” The policy had an incontestability clause of two years, and the man died after the two-year period. The insurance company discovered the fraud and denied payment of the claim.
An insurer cannot assert the defense that an imposter took the required medical examination to deny coverage under a life-insurance policy after the contestability period in the policy’s incontestability clause has ended.
Incontestability clauses
required by statute to give the insurer a period of time to investigate potential fraud
Objective of disability insurance
protect against the insured’s lost wages due to inability to work
Sources of disability insurance
i. Employer
1. Worker’s comp (required): covers (1) wages, (2) medical bills, and (3) vocational rehab
a. Worker’s comp provides indemnity for the employer
2. Short-term and long-term disability as party of benefits package
ii. Individual market – only source for self-employed
iii. Government – Social Security Disability Insurance (SSDI) (permanent disability only)
Benefits of disability insurance
i. Financial
ii. Vocational rehabilitation (under worker’s comp)
Mossa v. Provident Life and Casualty Insurance Company
Plumbing and heating owner plaintiff had a disability policy that provided total disability benefits if he was “not able to engage in any gainful occupation in which he would engage because of education, training, or experience.” When plaintiff became disable, the insurer argued that he was able to work in a gainful occupation so was not eligible for further payments.
An insured is not barred from recovery for total disability under a disability-insurance policy merely because the insured could find a job paying a wage that is not comparable to the insured’s previous wage.
Heller v. Equitable Life Assurance Society of the United States
Plaintiff, an invasive cardiology surgeon, developed carpal tunnel syndrome and claimed disability under a policy that provided “total disability will not be considered to exist for any period during which the insured is not under the regular care and attendance of a physician.” The plaintiff’s physician recommended carpal tunnel syndrome, the plaintiff refused, causing the insurer to stop paying benefits.
