A Life Insurance Policy is a contract between an insurer and a policyholder under which the insurer will pay the designated beneficiary a specific sum of money upon the death of the policyholder whilst the policy is in effect. Other types of protection can also be included as supplements to a Life Insurance Policy: insurance for a critical illness or disability, for example.
Life insurance may provide useful financial assistance for the family members or other dependents of the policyholder. It can also be used as a channel for investment, or for saving for such things as retirement.
Specific exclusions may be written in a Life Insurance Policy, so the policyholder much pay attention to the terms and conditions in the policy, and check the relevant exclusions clauses and liability limit of the insurer.
Utmost Good Faith
Insurance contracts are based on trust. The insurer trusts the policyholder to give true and precise details about what is being insured. This is the principle of 'Utmost Good Faith'. One is responsible for giving complete and correct information to their insurer. Care should always be taken to submit the whole truth so that insurance companies can accurately assess the risk. If any information is incomplete or inaccurate, or one does not comply with the conditions of their policy, the policy may be void.
Equally, before taking out an insurance policy, one should read all the documentation and the terms of the policy very carefully to ensure that you understand the exact nature of the policy, the risks it covers, and the exclusions.
Once the insured person in life insurance dies, the claimant may initiate the claim proceedings with the insurance company. Different insurance companies are required to submit different supporting documents, claimants should consult the relevant financial adviser or insurance company before initiating the claims process. In general, the supporting documents required for the death claim are as follows:
1. What is meant by a “contestable period” in relation to life insurance?
A "contestable period" is a contractual provision that is often found in a life insurance policy. The contestable period usually covers a period of one or two years from the effective date the insurance policy, depending on the terms written on the policy.
Through this provision, the insurance company has the right to contest (to dispute) the validity of the insurance policy and to refuse to pay the death benefit if the insured person dies within the contestable period. The most common reasons are suicide or misrepresentation of the health of the insured person.
Within the contestable period, the insurance company has the opportunity to investigate whether or not a vital misrepresentation has been made. However, after the expiration of the contestable period, the beneficiary of the insurance policy is protected against the contesting of the insurance company (i.e. the policy becomes "incontestable"). In other words, the insurance company will be obligated to pay the death benefit once the contestable period has expired, except where there is fraud (e.g. submitting fake documents during the insurance application or claim process).
Please note that the "contestable period" provision may not apply to supplementary benefits, such as payment of medical or hospital confinement expenses. In addition, life policies can be without any "contestable period" clause at all.
2. What is the effect of a “suicide clause” in a life insurance policy?
Under the "contestable period" clause, which is usually in force for one or two years, the insurance company can deny the claim where the insured person has committed suicide.
3. The insurance company appointed a doctor for my medical check-up before approving my insurance application. That doctor failed to discover a health problem that I did not disclose. Can the insurance company use this non-disclosure to deny any claims I may subsequently make under the insurance policy?
Under the principle of utmost good faith, the insured person or the policyholder has the duty to disclose all the information relating to the purchase of insurance to the insurance company.
Consequently, irrespective of there having been a medical examination conducted by a doctor appointed by the insurance company who failed to diagnose the health problem, that insurance company may still deny your claim. This is particularly so if your non-disclosure is important, and has affected the assessment of your risk profile by the insurance company.
4. What are the differences between a "revocable beneficiary" and an "irrevocable beneficiary"? Under what circumstances can I change an irrevocable beneficiary in my life insurance policy?
A beneficiary in a life insurance policy is the person(s) who will receive the money (death benefit) from the insurance company upon the death of the insured person. There is a "Beneficiary Designation" section in life policies in which the policyholder names the party or parties as the beneficiary or beneficiaries who will receive the proceeds of the death benefit.
A revocable beneficiary designation gives the policyholder the right to change the beneficiary without the consent of the named beneficiary.
An irrevocable beneficiary designation does not give the above right. That is to say, the consent of the named beneficiary must be obtained before the policyholder can change the beneficiary.
According to the subject question, the policyholder can only change the beneficiary if the named irrevocable beneficiary shown on the policy consents to the proposed change.
5. My son is now 15 years old. Can I name him as the beneficiary in my life insurance policy? Would he be entitled to receive all the proceeds if I die before he reaches the age of majority (i.e. the age of 18)?
Yes, you can name your son (who is a minor) as the beneficiary of your life policy.
You should arrange to name a guardian and/or trustee to receive and manage the proceeds on his behalf until he reaches the age of majority after which he can inherit all the proceeds directly.
6. Can a person under 18 years of age purchase a life insurance policy?
The rule under the law is that a minor (a person under the majority age of 18), usually cannot make contracts. An exception to this rule is that if the contractual goods or services are considered as "necessaries" for the minor, such contract is legally binding (please refer to the topic of Consumer Complaints).
If the insurance contract is beneficial to the minor, the contract may be upheld by the Court. In practice, when a minor submits an application for buying life insurance, the insurance company may first assess the income of that minor (i.e. whether or not he/she can pay the premiums).
You should also note that a minor can be named as the "beneficiary" in a life insurance policy.
7. If my insurance policy has lapsed and I try to "reinstate" my policy by paying the premiums again, can I submit any claims to the insurance company at this stage?
Normally, there is a "reinstatement" clause by which a life insurance policy that has lapsed (usually due to non-payment of premiums) can be reinstated. The policy can be brought back into force again even though the policy was no longer in force.
It will usually be less expensive to reinstate a policy than to purchase a new one. The premium for a new policy would likely be more expensive due to the fact that the insured person is older. Therefore, the person's risk profile would likely fall into a higher premium category.
The "reinstatement" clause usually permits the policyholder to reinstate the policy, provided that certain conditions are met with, for example:
During the time in which the reinstatement of the policy is being processed, any claim submitted would be held pending the approval of the reinstatement application by the insurance company.
8. Can I change the beneficiary of my life insurance policy by stating that in my will?
Once a person has purchased a valid policy, the entitlement to the proceeds is controlled by the policy itself. It falls outside the estate and a policyholder generally cannot alter the beneficiary through his will. If he/she wants to change the policy beneficiary, it has to be done through the policy issuer.
9. Does the beneficiary need to supply the insurance company with the original of the life insurance policy in order to make a claim or will a copy suffice?
For some insurance companies, producing the original life insurance policy is not essential for a claim payout under the Policy. You need to check the terms under the Policy.
10. Is there a time limit for making a life insurance claim?
In the normal course of events, there is no time limit to claim a life insurance policy. However, it would be prudent to check the terms of the policy to see if any time limit is imposed.
In practice, some insurance companies have on hand life insurance policies taken out 100 years ago which no one has yet claimed, so they have teams that search for the relevant beneficiaries.
In any event, you should check the terms of your own life insurance policy for the time limit, if any.
11. If the policy does not specify a beneficiary, what will be the amount of compensation in the life policy?
If the policy does not specify a beneficiary, or is treated as an estate, the claimant is required to submit an estate management letter or probate for the death claim, enabling the insurance company to legally award compensation to the estate administrator or executor. There are also examples of cases that have not been settled for more than 10 years, if disputes involving property and litigation that have resulted in the distribution of inheritances have arisen. Thus, the appointment of policy beneficiaries can not only reduce the confirmation process and time for the distribution of inheritance, but also allow insurance companies to implement policy instructions to distribute compensation directly to beneficiaries.
