One of the most common reasons life insurance coverage is denied is that the policy lapsed due to nonpayment of premiums. While some of these denials are valid, many of them are not. Policyholders have to pay premiums on time to avoid policy lapse but what is not clear to many policyowners is what rules life insurance companies need to follow before they lapse policies due to nonpayment. State laws differ in terms of insurance companies’ duties, affecting how a case involving a denied life insurance claim due to nonpayment of premiums is handled.

California life insurance laws, in particular, stand out, and insurance companies have many duties when it comes to terminating policies due to lapse. California imposes several obligations on insurance companies to protect policyholders against preventable life insurance lapses.

In this blog post, our life insurance attorneys will explain what duties California insurance companies have when dealing with lapsed policies and what you can do if your claim was denied due to non-payment of premiums.

If you or someone you know is dealing with a claim denied due to a lapsed life insurance policy, call us at (888) 510-2212 for a free, no-obligation consultation with one of our life insurance lawyers.

The Responsibilities of a Life Insurance Company

Below is the list of some of the most common obligations placed on life insurers:

• Insurance companies may have a duty to send several pending lapse notices to the policyowner before the policy lapse; 
• In some states, insurance companies have a duty to send a third-party designation notice to policyowners giving them the right to designate another person to receive their premium-due bill; 
• Insurance companies may have a duty to send clear pending lapse notices within a certain period to the policyowner’s correct address before allowing the policy to lapse;
• Insurance companies must follow the lapse laws of the state where they sold the policy (and where the insured lived), including grace period laws and pending lapse notification rules; 
• Insurance companies may have a special duty to alert policyholders who are 65 or older of the pending life insurance lapse; 
• Insurance companies may have a duty to keep a life insurance policy active during the grace period even if a premium payment was not received; 
• Insurance companies have a duty to allocate premiums received properly; 
• State laws may require insurance companies to include certain language in their life insurance lapse notices alerting policyowners of the upcoming lapse.

Depending on the laws of the state where the policy was issued, an insurance company may not be allowed to deny a life insurance claim due to lapse if it fails to adhere to the rules described above. Beneficiaries whose claims have been denied due to lapse should investigate the circumstances leading to the life insurance policy lapse to make sure their legal rights are protected.

California Law: What Happens if Life Insurance Lapses and What Duties Do Companies Have

California laws place many duties on life insurance companies. For example, California life insurance companies have a duty to warn the policyowner of an impending lapse due to non-payment of premiums.

Another duty placed on life insurance companies selling policies in California is a duty to give an applicant the right to designate someone else to receive notice of lapse or termination of a policy for non-payment of premium. Every year, life insurance companies must send California policyowners reminders to designate or change their written designation or designate more persons to receive premium-due notices. This is important because most life insurance policies lapse when the insured policyowner is ill, in the hospital, or mentally incapacitated and unable to open the mail and make a premium payment.

This California life insurance law protects policyowners and their beneficiaries from a denied claim due to lapse by allowing policyowners to designate another person to receive their bill/premium-due notice.

If insurance companies violate rules governing a life insurance policy lapse in California, they may be required to pay a claim they had denied due to lapse.  

Life Insurance Lapse Notice Requirements in California

The insurance company must give adequate and timely notice before the policy can be terminated for nonpayment of premiums. It is not enough to send a notice after the coverage has lapsed. Policyowners and their designees must be informed that a lapse is pending, and life insurance companies are required to provide such notice within 30 days after a premium is due and unpaid.

Life insurance companies issuing policies in California are also required to include in the policy a provision for a grace period of not less than 60 days after the premium due date before a life insurance policy can lapse or be terminated due to nonpayment. The provision must also inform policyowners that their policy will remain in force during the grace period.

In addition, if the insurance company fails to provide the required notice, the policy termination cannot go into effect. If a life insurance company does not notify the policyowner of missed premiums prior to termination, and the insured dies, beneficiaries may still be able to obtain their death benefit.

What to Do if a California Life Insurance Company Denied Your Claim Due to Lapse?

Very often, beneficiaries whose claims have been denied due to lapse in California receive a letter from the insurance company simply stating that the coverage had terminated and there was no life insurance coverage at the time of the insured’s death. Such denial letters are often vague and rarely reference any dates, for example, the date the last premium was paid and when the grace period started and ended.

Without knowing what coverage the last premium paid for and when the grace period started, it is impossible for beneficiaries to understand whether their claim denial was legitimate. In such situations, it is best for them to consult with an experienced life insurance lawyer who can evaluate their situation and determine if they have a case.

If a life insurance company denied your claim due to a policy lapse, call our life insurance attorneys today for a free consultation. Contact us at (888) 510-2212.