by lizking3 » Mon Oct 05, 2009 08:31 pm
I discovered a life insurance policy my ex-boyfriend had taken out on me 8 months before we split, naming him as the beneficiary but me as the owner. I was not involved in the application process and he has been paying the premium for the past six years. Is this legal?
Posted: Wed Jan 06, 2010 03:43 am Post Subject:
Guest1, While I enthusiastically support your desire to understand the following scenario, please understand that it is nothing more than an example of cases I have worked in the past - it is not real. I will continue to use it for instructional purposes only.
Okay, let's take this apart:
Ms. Gay applies for life insurance with Ms. Lesbian as beneficiay. She wants to take care of Ms. Lesbian and their children if she dies.
Yes, this is correct. For our purposes, each of the women have ownership of their own policies
.The insurance company turns down the application.
You are correct here as well.
WHY though did the insurance company turn down the applications?
Because the women did not hide the fact they were openly gay and, at that time, most insurance companies REFUSED to issue polices to gays and justified their company policy by claiming the proposed insured failed to meet the insurable interest requirements.
Ms. Gay reapplies for insurance, but this time with her mom as the beneficiary.
Ms. Gay had no idea she could reapply until, by your own admission, an agent explained that if she teporarily changed her beneficiary designation, the policy would be issued. Afterwards, Ms. Gay is told she can change her designation and everyone will be happy.
Herein lies the problem. THE COMPANY REFUSED TO ISSUE THE POLICY WHEN MS. LESBIAN WAS A NAMED BENEFICIARY.
The insurance company has no problem with this and approves the policy.
Because, in a manner of speaking, they've been lied to. If you have anywhere near the experience I give you credit for, you know that a company's underwriting and inforce policy service departments don't communicate. They haven't a flipping clue what's happened and how the proverbial wollen sock has just been pulled over their heads.
After the policy is issued, Ms. Gay changes the beneficiary to Ms. Lesbian.
Again, if this was not an issue, the company would have issued the policies in the first place. It doesn't matter what's written on the application or change of beneficiary form; their underwriting guidelines have been circumvented and this places the policies in a position to be challenged - and the 2 year exclusion clock will not even start at this point.
The insurance company has no problem with this change of beneficiary.
Because they have no idea what's happened.
Some time later, Ms. Gay dies. Ms. Lesbian gets the proceeds.
That's the way it's supposed to work - had the policies been issued truthfully.
The teenager, now an adult, wants more of the money and decides to get an attorney.
If we started a thread discussing why family members challenge life insurance beneficiary designations or why some greedy people are seemingly never happy with what's been left to them, it would be never-ending.
This brings everything to the attention of the insurance company who then decides not to pay the claim.
They're not allowed to. An attorney has filed a motion to suspend payment pending the outcome of the investigation and the court's decision. The company will probably place the funds in some sort of trust account under direction of the court.
Do I have my facts straight? Assuming that I do, I have a few questions/comments.
Yes, you seem to have everything correct.
First of all, what possible grounds could the adult child have to the death benefit?
Asked and answered.
If Ms. Gay wanted him to get the money, he could have been named beneficiary from the very beginning and the policy would have been approved.
You are correct again. But, at that time she didn't want her son to receive the money, she wanted he partner to be her beneficiary.
Ms. Gay also had the ability to change the beneficiary to him at any time if she wanted him to have the money.
Correct again.
Secondly, under what grounds could the insurance company not pay the claim?
Asked and answered.
The insured didn't commit any fraud.
Yes they did. When the company's underwriting guidelines were violated, the policy could have been nullified.
They answered all questions honestly.
You are correct again. And based on those answers, the policies were initailly declined.
They broke no laws or company rules by changing the beneficiary.
Yes they did. Had the whole "ordeal" been completed honestly, the policies would never have been issued.
Now, I could see the company possibly going after the agent,
I agree with you on this observation as well.
but I can't see them getting away with not paying the death claim.
If the policy was submitted dishonestly, the company would not be required to pay the death claim.
The insured answered everything honestly. They didn't hide any information.
You're correct again. AT THE TIME THE APPLICATIONS WERE COMPLETED, all questions were answered honestly. The fraud occurred after the fact, and in this case, with guidance from the agent.
(As an agent, I would never do something like you are describing without the ok from the company. Hey, agents reading this, our career is more important than any individual case.)
I'm glad you see the value in this and I support your position completely.
Posted: Wed Jan 06, 2010 03:43 am Post Subject:
Guest1, While I enthusiastically support your desire to understand the following scenario, please understand that it is nothing more than an example of cases I have worked in the past - it is not real. I will continue to use it for instructional purposes only.
Okay, let's take this apart:
Ms. Gay applies for life insurance with Ms. Lesbian as beneficiay. She wants to take care of Ms. Lesbian and their children if she dies.
Yes, this is correct. For our purposes, each of the women have ownership of their own policies
.The insurance company turns down the application.
You are correct here as well.
WHY though did the insurance company turn down the applications?
Because the women did not hide the fact they were openly gay and, at that time, most insurance companies REFUSED to issue polices to gays and justified their company policy by claiming the proposed insured failed to meet the insurable interest requirements.
Ms. Gay reapplies for insurance, but this time with her mom as the beneficiary.
Ms. Gay had no idea she could reapply until, by your own admission, an agent explained that if she temporarily changed her beneficiary designation, the policy would be issued. Afterwards, Ms. Gay is told she can change her designation and everyone will be happy.
Herein lies the problem. THE COMPANY REFUSED TO ISSUE THE POLICY WHEN MS. LESBIAN WAS A NAMED BENEFICIARY.
The insurance company has no problem with this and approves the policy.
Because, in a manner of speaking, they've been lied to. If you have anywhere near the experience I give you credit for, you know that a company's underwriting and inforce policy service departments don't communicate. They haven't a flipping clue what's happened and how the proverbial wollen sock has just been pulled over their heads.
After the policy is issued, Ms. Gay changes the beneficiary to Ms. Lesbian.
Again, if this was not an issue, the company would have issued the policies in the first place. It doesn't matter what's written on the application or change of beneficiary form; their underwriting guidelines have been circumvented and this places the policies in a position to be challenged - and the 2 year exclusion clock will not even start at this point.
The insurance company has no problem with this change of beneficiary.
Because they have no idea what's happened.
Some time later, Ms. Gay dies. Ms. Lesbian gets the proceeds.
That's the way it's supposed to work - had the policies been issued truthfully.
The teenager, now an adult, wants more of the money and decides to get an attorney.
If we started a thread discussing why family members challenge life insurance beneficiary designations or why some greedy people are seemingly never happy with what's been left to them, it would be never-ending.
This brings everything to the attention of the insurance company who then decides not to pay the claim.
They're not allowed to. An attorney has filed a motion to suspend payment pending the outcome of the investigation and the court's decision. The company will probably place the funds in some sort of trust account under direction of the court.
Do I have my facts straight? Assuming that I do, I have a few questions/comments.
Yes, you seem to have everything correct.
First of all, what possible grounds could the adult child have to the death benefit?
Asked and answered.
If Ms. Gay wanted him to get the money, he could have been named beneficiary from the very beginning and the policy would have been approved.
You are correct again. But, at that time she didn't want her son to receive the money, she wanted he partner to be her beneficiary.
Ms. Gay also had the ability to change the beneficiary to him at any time if she wanted him to have the money.
Correct again.
Secondly, under what grounds could the insurance company not pay the claim?
Asked and answered.
The insured didn't commit any fraud.
Yes they did. When the company's underwriting guidelines were violated, the policy could have been nullified.
They answered all questions honestly.
You are correct again. And based on those answers, the policies were initailly declined.
They broke no laws or company rules by changing the beneficiary.
Yes they did. Had the whole "ordeal" been completed honestly, the policies would never have been issued.
Now, I could see the company possibly going after the agent,
I agree with you on this observation as well.
but I can't see them getting away with not paying the death claim.
If the policy was submitted dishonestly, the company would not be required to pay the death claim.
The insured answered everything honestly. They didn't hide any information.
You're correct again. AT THE TIME THE APPLICATIONS WERE COMPLETED, all questions were answered honestly. The fraud occurred after the fact, and in this case, with guidance from the agent.
(As an agent, I would never do something like you are describing without the ok from the company. Hey, agents reading this, our career is more important than any individual case.)
I'm glad you see the value in this and I support your position completely.
Posted: Wed Jan 06, 2010 06:47 am Post Subject:
Guest1 . . .
In your original proposition, a beneficiary -- but not the truly desired beneficiary -- is named with the intent to change the beneficiary after the policy is issued. Fine, that's a prerogative of ownership.
The potential exists following policy issue and prior to delivery that the insured dies. There is no opportunity to change the beneficiary as desired, the money is paid to the named beneficiary, who legally may do with it has he/she/it pleases, and has no obligation to do anything else with the policy proceeds, even if "everyone" knew what the intent was.
Having said that, with the exception of a handful of states that have not brought their insurance codes into full alignment with the NAIC model regs and the laws of other states, today this whole scenario is patently unlawful -- the insurer cannot reject an application on the basis of who the beneficiary may be, what their gender is compared to the insured, or what the relationship between the insured and beneficiary is.
Agents are supposed to know this, and inviting the insured/owner to name someone other than the true intended beneficiary us what exposes the agent to an E&O claim if the proceeds end up being paid to someone else by name.
A common example of this is an agent who tells a client "You cannot name a minor child(ren) as the beneficiary. You have to name an adult who will use the money for your child." Absolutely wrong under California law, and almost all other states. It is true that the insurer cannot pay money to a minor, but by naming anyone else as beneficiary earmarks the money as their property and they cannot be forced to do anything with the money they choose not to do.
A good agent would advise the client to name the child(ren) as beneficiary in the application and would refer the client to a legal/tax professional for proper advice (which would probably be some kind of trust that makes the child(ren) beneficiaries of the trust, and the trust the beneficiary of the life policy. Once the trust is in place, then the beneficiary can be changed from child to trust, and the insurer cannot prevent that either.
I'm not certain I would trust the "rep" from the insurer, even if it was in writing, unless they were from the insurer's Office of General Counsel. CSRs do not typically have the authority to give out such advice for fear that they are obligating an insurer to something it would otherwise choose to avoid. On the few occasions I've had very complex beneficiary designations to word on an app (or separate sheet of paper in one instance), I have called the OGC to ask for their advice. On one case, the lawyer said, "Draw a diagram of what they are proposing, have them sign the drawing, and send it to us. If we can figure out how to make it work, we'll write it for you and you can take it to the owner for their approval."
Posted: Wed Jan 06, 2010 01:29 pm Post Subject:
Knowing that some of the things I did back in 1996 are the reason for the change.
Good point...and I can see that would be terrific job satisfaction Mark...Posted: Wed Jan 06, 2010 02:29 pm Post Subject:
Mark, I appreciate the response.
Do you know of any real world examples of a death claim not being paid because of this? I'm having trouble seeing it since, as Max put it, changing beneficiaries is a perogative of ownership.
I can see how this can cost the agent his job and how the agent may have to worry about his E&O. I just don't see how the insured would have any issues.
The insured was 100% honest and followed all of the rules of the insurance company. In this case, obviously, the rules of the insurance company are "one can't name a lesbian partner as beneficiary, but one can change the beneficiary to a lesbian lover."
It's not the insured's responsibility to make sure that one department of the insurance company talk to another one.
Posted: Wed Jan 06, 2010 05:54 pm Post Subject:
Once a week, I teach the Ethics portion of the class going through CA’s Insurance School of the Central Valley. In these classes, 12-14 new students each week attempt to learn enough about the insurance business to pass the state exam and get their licenses.
I’ve been told by other instructors that I have a great ability to create parallels (a set of similar, but unrelated subjects) which tend to make those “harder -to-grasp” subjects a little easier to comprehend.
For example: If you rob a bank in California with a gun, you’ll typically spend more time in jail than you will if you use a knife. This doesn’t mean that doing so is “less-wrong”. Robbing a bank with a Pez dispenser is just as dishonest and you’ll still do time.
Now, let’s say you rob a bank in California (with a Pez dispenser) and make a clean getaway. After all, you gave the plan a considerable amount of thought and everything went exactly as planned. However, if you get caught 20 years later, IT IS JUST AS WRONG as it would have been on the day of the robbery.
If, in 1990, it was against the law (for this example) to name your gay partner as your beneficiary, it is illegal in every single instance you can think of. If the law hadn’t been changed later on (you’re welcome), it would still be illegal today and manipulating the system would not alter the legality in any way, shape, or form.
Doing 100 mph in a Ford is just as wrong as doing 100 mph in a Toyota. It doesn’t matter that you’re in a hurry to go home to use the bathroom – it’s still wrong.
I’m done with this one. I’m begging someone else in the Community to help me with his next response.
Posted: Wed Jan 06, 2010 06:35 pm Post Subject:
Mark, please don't be done with this. I may be argumentative, but I'm not doing this for argument's sake. I'm truly trying to understand.
In 1990, was it illegal to change the beneficiary of a life insurance policy to a lesbian partner? If it wasn't, how was a law broken? If it was, didn't the insurance company have a responsibility at the time of the beneficiary change instead of waiting until death occurred 20 years later? The insured would have no way of knowing that they broke a law.
Forget about ethics here. Ethics is very important, but it is the agent who needs to be ethical. We're talking about what happens to the insured. That is why I am asking if you can name any similar case in which a death benefit wasn't paid.
Posted: Sat Jan 09, 2010 08:01 am Post Subject:
Let me jump back in.
The insured was 100% honest and followed all of the rules of the insurance company.
Doesn't really matter! The insurance company can make all the "rules" it wants to make, but if any of the rules violate state law which governs insurance, it's the law that controls. California law, for example says a husband cannot obtain life insurance on his wife without her knowledge and consent. The husband applies according to the insurer's "rule" that they don't need the wife's consent. The policy/contract is still void by state law.
You also see that today in the problem of a few individual states recognizing "marriage" between two persons not male and female, while most others still do not. Generally, one state will recognize a marriage formed in any other state . . . if it would be lawful in the state where the marriage did not occur. Since California has, by referendum, overturned the right of gays/lesbians to be "married" legally, we do not acknowledge those marriages that have occurred in Hawaii and the couple of other states where it is allowed, but we have no power to invalidate them either. (We do have the registered domestic partner provision that confers many, but not all, of the same privileges of marriage.)
California's Insurance Code is also clear on beneficiaries: there is no need for insurable interest to exist between the insured and the beneficiary. If the policy was issued here, as a contract, it is governed by California law, even if the insured and/or beneficiary later reside in one of the few stone-age states where it still is required. The beneficiary will get the money if the insured dies -- the new state's court cannot interfere with that right, it must apply California law to its decision if the payment of a claim was challenged.
As to fraud, which has been woven into some of the prior discussion, to prove that, one party must show "intent" to try to gain an advantage over the other party by their actions. The scenario Mark dissects fairly depicts what probably is a fraudulent set of circumstances.
But . . . I don't know why there's all this discussion. It's a moot point today in all but about 4 or 5 states (if that many). And those few states' laws could probably be overturned quite easily by the courts today as discriminatory.
Posted: Sat Jan 09, 2010 05:30 pm Post Subject:
Thanks Max
Posted: Sat Jan 09, 2010 07:31 pm Post Subject:
Do you know of any real world examples of death claims not being paid because of this?
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