The insurance industry presents numerous challenges for policyholders. Life insurance can be a particular problem. When a policyholder misses a payment, the insurance company can discontinue coverage. Insurance providers deny numerous claims every year due to lapses in payment like this.
But is there any grace period or notice requirement for insurance companies? Can they simply discontinue coverage immediately or deny a life insurance claim if a policyholder is a day late making a single payment? It seems like there must be some limits to insurance companies discontinuing coverage for lapsed payments.
A year after a landmark case
A publication in newswires online discusses the impact of McHugh v. Protective Life Insurance Company. This case involved a California policyholder denied life insurance benefits due to a lapse in payment.
California, the state in which this case took place, had recently passed new legal requirements for insurance carriers giving notice and a time for makeup payments in the event of a lapse from policyholders. The Court ruled that insurance companies were required to follow those new legal requirements even for policies that were in effect before the laws were passed.
Although it’s a bit of a technical legal question in McHugh, the primary point is that there are legal limits to insurance carriers denying claims based on lapsed payments.
The policy behind the ruling
It is important to note the policy underlying the Supreme Court’s ruling in McHugh. People count on their insurance carriers to come through for them when it matters. People pay premiums for years to have their insurance in place. But when illnesses and accidents occur, these are the times people are most likely to miss a payment, and these are the times people most need their insurance to come through.
Allowing insurance carriers to discontinue policies or deny claims based on one missed payment, without notice or grace period, is simply bad policy.
What this means for you
If your insurance has been discontinued, or a life insurance claim has been denied based on lapsed payments, you could have a valid legal claim. Each state has its own set of laws and regulations on life insurance payment lapses, so the best first step is to talk with your lawyer to discuss your rights and options.