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When they cancel your policy after you die.

We’ve all seen “that” life insurance ep of the crime drama of choice. For whatever reason (1) wife decides to off husband for the insurance money or (2) either spouse decides to commit suicide so the other one can get the dough. Both are legitimate reasons for the insurer to deny the death benefit.

The case of Ian Weissberger, a mortgage broker from Cathedral City, CA who died of Lou Gehrig’s disease in 2005, is a little harder to comprehend. There was no foul play. No suicide. His wife was the legitimate beneficiary. And his fatal illness was discovered months after Weissberger took out the policy.

And yet, the insurer, American General, a subsidiary of American International Group Inc., denied the claim. They’re good at that. The companied rejected more death benefits in 2009 than any other insurer in the nation, saying “no” on 79 claims and saving themselves $36 million.

When Weissberger’s widow didn’t get the pay out, she lost her home. Ultimately, she did settle for an undisclosed amount with the company, which rejected her husband’s claim on the grounds that his application for the policy was incomplete. They said an investigation after his death revealed that he suffered from bi-polar disorder and chronic pulmonary disease and had not informed the company.

One problem. According to his doctor, Weissberger didn’t have either condition.

In a November 20, 2010 story for The Los Angeles Times, “Flaws Can Cancel Life Insurance — After Death,” Lisa Girion and Sandra Poindexter quoted Amy Bach, an advisor to the National Association of Insurance Commissioners.

Bach said, “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.”

Basically the company in Weissberger’s case claimed what is the leading reason benefits are denied — “material misrepresentation” — failure to disclose information vital to assessing risk.

In the vast majority of cases, life insurance claims go forward without a hitch — $38 billion worth in 2009 with only $372 million denied. However, for individuals and families, those denials can have catastrophic consequences.

So, add length of approval time to your list of cautionary items to consider when dealing with an insurer. Minnesota Life Insurance Co., which had no death benefits denied in 2009, usually takes 2 months to vet their applications.

If things are moving forward too quickly and too smoothly, maybe you should be the one to put on the brakes. Better to deal with issues now or even to find another company with a better pay-out percentage than have your heirs denied what is rightfully theirs after your death.

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