The following are questions that are frequently asked by people who are facing the bewildering maze that makes up ERISA procedures. These questions and answers are general in nature and should not be relied on as legal advice for any specific case. Legal advice can only be rendered by a competent attorney to his or her client , within the bounds of an attorney-client relationship, after full disclosure of all relevant facts. For specific answers from an experienced disability insurance lawyer, please contact us at 877.626.3501. We serve clients nationwide.
What is life insurance?
What is a life insurance policy?
How long does it take to receive life insurance benefits?
What happens if there is someone else claiming to be the beneficiary of a life insurance policy?
Q: What is life insurance?
A: Most people purchase life insurance to protect their loved ones in the event of their early death. There are several types of life insurance. The largest division is between term life insuance and what insurance agents like to call “permanent” or “investment” life insurance:
Permanent life insurance has an investment component to it. That is the purchaser of “permanent” insurance pays more than the actuarial cost of insuring his or her life. The policy will build up a “cash surrender value” - an amount of money that the owner can get by canceling the insurance or that he or she can borrow against.
There are a lot of variation on the theme, with various annuity options and the like. Insurance agents like to call themselves “financial advisors” or “investment advisors” and like to sell these products. You probably have heard the pitch at some time in your life - they will tell you that life insurance is a hedge against dying too soon or living too long. If you die too soon, your loved ones will be protected by the insurance, if you live too long (after you are no longer able to work) you will have the built up value on the insurance policy to provide you with retirement income.
Term insurance is bare-bones life insurance. There is no investment component involved and the insurance never has a cash surrender value. The premium is actuarially calculated to pay only for the amount of benefits that the face amount of the policy provides. There are variations on this theme, too.
Typically term life insurance premiums would go up every year, as the insured grew older and the likelihood of his or her death became greater. However, many modern term life insurance products have averaged the premium over the projected life of the insured so that he or she pays the same amount of premium every year. Of course, it is to the insurance company’s benefit to do this because in the event of early cancellation, the company has been paid higher premiums than it would have gotten using the traditional model.
Life insurance provided as a benefit of employment is almost always term insurance. There is rarely if ever a cash surrender value
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Q: What is a life insurance policy?
A: Life insurance policy the contract between the insured and the insurance company. It is a legally binding contract just like any other contract and it provides for payment to the named beneficiary at the death of the insured. The amount is either named in the policy or is computed by a formula in the policy. For employment related policies, the formula is often a multiple of the employee’s earnings.
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Q: How long does it take to receive life insurance benefits?
A: An insurance company is obligated to pay claims within in a reasonable amount of time. Generally, this should not be more than about 6-8 weeks after the claim with all supporting documents is submitted. If the claim has not been paid within ninety days, that could be an indication of bad faith
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Q: What happens if there is someone else claiming to be the beneficiary of a life insurance policy?
A: This problem typically happens with long-term employees who have divorced and remarried. Sometimes, they forget to make the election to change the beneficiary to the new spouse. Or maybe the decedent attempted to make the change, but the election was not on the proper form, or there was some other defect. If this happens, you should contact an experienced ERISA attorney immediately. ERISA is different from other laws, and unless an attorney is familiar with its workings, it can be a mine field full of traps for the unwary.
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