Times investigation: Insurers increasingly challenge life insurance claims

Typically, life insurers make good on policies, paying $38 billion in death benefits on individual policies last year. But a Times review found that the claims of thousands of beneficiaries are denied or disputed every year — more than 5,000 last year alone — many for allegedly flawed applications, a Times review found.

Overall, the amount of money life insurers withheld from beneficiaries has more than doubled over the last decade, to $372 million last year, even as policy sales went down, according to a Times' analysis of data compiled by the National Assn. of Insurance Commissioners.

Insurers can dispute claims for a number of legitimate reasons — unpaid premiums, suicide, foul play by the beneficiary. But the No. 1 reason, accounting for about two thirds of disputes last year, is "material misrepresentation." That's failing to disclose information that insurers deem important in assessing risk, and it allows insurers to rescind coverage altogether.

To stop abuses by insurers, most states long ago banned limitless rescissions, but in California and elsewhere, they are allowed during the two years immediately after a policy is signed.

Experts and consumer advocates say some insurers have turned that into a "gotcha period," seizing on flaws after claims are made that they could have looked for before issuing coverage.

"Regulators need to come down hard on companies that are rushing applications through in order to gain premium income without taking time to screen the risks, then using rescission to control payouts and increase profits," said Amy Bach, an advisor to National Assn. of Insurance Commissioners and executive director of United Policyholders, a nonprofit consumer group.

http://www.latimes.com/news/local/la-me-life-insure-20101121,0,4197678.story

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No, not THE Times I’m afraid (we wouldn’t know if they did because of the Paywall) but the LA Times, a long and well researched investigation into the murkier and dark side of life insurance. It is long but a top, top, top investigation, read it, absorb it and go and double check your life insurance policy paperwork like everyone did after reading this.