It’s no secret that the majority of Canadians today don’t really understand the life insurance policies they own or the subject matter altogether. Life insurance is such a vital financial tool and important part to your financial planning that it is incumbent upon you to have a basic level of understanding.Here are 3 quick pitfalls that are important to be aware of.Incomplete Details In The ApplicationAll life insurance contracts have a two-year contestability clause which means the insurer can contest a submitted claim within two years of the application date if material information was not disclosed during the application process. If you have forgotten to note a relevant fact in your application pertinent to the claim it is possible that your claim could be denied. Fraudulent acts such as lying in the application would not only have a claim denied but possibly also have your policy rescinded entirely. It goes without saying that one should always be truthful when completing a life insurance contract or any insurance contract for that matter. A copy of the original application often makes a part of the policy and generally supersedes the policy itself. Having-said-that, each insured has a 10-day right to review their policy once they receive it. In that time period if you feel the policy is not up to the standard you thought it to be, you can return it to the company and all premiums paid would be refundedBuying The Right Term Coverage For Your SituationThis process should first start with a question: “What do I need the insurance for?” If your need is to cover a debt or liability then perhaps term is best however, if your need is more long-term such as for final expenses, then permanent or whole life would be a better fit. Once you have established your need you’ll then have to decide what type of coverage you want; term or permanent.Term contracts are the simplest to understand and the cheapest because there is an “end” to the policy; generally 5, 10, 15, 20 sometimes even up to 35 years. If the policy is renewable an increased premium will be required come the end of the term and this is often a big shock to the client’s bottom line. As an example: a 35 year old male, non-smoker with a 20-year term and 300k benefit may pay anywhere from $300 to $400 per year in premiums. When this policy renews at age 55 his new annual premium could go as high as $3,000 per year! Most people don’t understand this and come term end are devastated, generally unable to continue the policy. It is recommended that your term program have a convertibility clause so that you have the option of converting your term life into a permanent policy. You can exercise this right at any time within the term of the policy without evidence of insurability. Taking a term policy without a convertibility clause should only be done when making your purchase for something of a specified duration. Also, the short side to term life is that it does not accumulate any value within the policy whereas permanent/whole life does.Permanent/whole life is a very complex from of life insurance because it has both insurance and investment aspects to it. These policies are most beneficial because you have value built up in the policy and you are covered until death however, they are much more expensive than term insurance. An option that you can consider is a permanent policy with a specified term to pay it. Using our previous example, you could have a permanent policy that has a 20-pay term meaning you will make premium payments for the next 20 years and after that you will have your policy until death without ever making another payment towards it. It is very important to understand the variables along with your needs before you make your purchase.Buying Creditor Life Insurance vs. Personal Life InsuranceOne of the biggest misconceptions people have is that their creditor life insurance is true personal life insurance coverage and will protect their family in the event of their death. Far too often consumers purchase these products, generally found with their mortgage and credit cards, by simply putting a checkmark in a box during the application process agreeing to have the plan. It sounds like the responsible thing to do but many families are left in paralyzing situations come claim time. Creditor life insurance, such as mortgage life insurance, is designed to cover the remaining debt you have. Making timely mortgage payments is ultimately declining your remaining balance. Creditor life insurance also declines as your debt declines. Keep in mind that the lender is named as your beneficiary in your policy so consequently, upon death your remaining balance on your mortgage or credit card is paid to the lender, not your family. In a personal life insurance policy you choose the beneficiary and upon death the full benefit amount is paid to the beneficiary of your choice.Personal life insurance is a great asset to have for a large number of reasons. When you buy life insurance your buying peace of mind but, you must have your situation properly assessed and be sure that you are clear on exactly what it will do for your family.
Most people in North Carolina have some sort of insurance. By law, persons operating vehicles are required to have liability coverage. The owners of the cars might also have collision coverage. Most homeowners have homeowner’s insurance, and many renters have renter’s insurance. Many people also have health coverage, whether provided by their employer or purchased directly by the individual. Businesses often have a general liability policy. These and other policies give rise to numerous claims and numerous insurance disputes every year in North Carolina.Governmental supervision: Insurers are subject to oversight by the North Carolina Department of Insurance (“DOI”). A consumer (or “inured”) can file a complaint against an insurer with the DOI. The DOI is not likely, however, to become heavily involved in a routine dispute between an insured and the insurer. Many statutes (within Chapter 58) regulate the insurance companies, as well as regulations promulgated by the N.C. DOI.Terms of coverage: The scope of coverage afforded under an insurance policy is determined primarily by the terms of the policy, and also by the applicable North Carolina General Statutes and any regulations by the DOI. When disputes are litigated in the courts, any precedential cases will also affect the interpretation of the policy. Health (and other) policies subject to ERISA may be subject to federal law, which preempts state law.Duties during claims handling process: Policies typically have provisions that give various rights to the insurer in the claims-handling process. The insured often must submit a “proof of loss” form, in which the loss is described to the insurer. The insured often must produce documents, and must submit to an “examination under oath,” at which the insurer’s lawyer can ask questions of the insured to investigate the claim. If the insured fails to comply with these provisions, then he can lose coverage. (Duties of the insurer are addressed below, in connection with the insurer’s potential liability for bad faith and treble damages.)Resolution of the claim outside court proceedings: Some aspects of the insurance claim might be subject to arbitration or appraisal (rather than court action). For example, the standard fire insurance policy in North Carolina, governed by statute, provides that the parties can use an appraisal process to value property (N.C. General Statute 58-44-16). A standard underinsured motorist policy in North Carolina contains a provision which allows the insured to demand arbitration.Resolution of the claim in a court proceeding: Where, however, the insurer and the insured cannot agree on coverage, and the dispute is not subject to arbitration or appraisal, they might have to take their dispute to court. The insured can file a lawsuit for breach of contract, and the insurer can file a suit for declaratory relief. In North Carolina, such suits are often filed in Superior Court in state court. They can also be filed in (or removed to) federal court if diversity jurisdiction is met. (There have, however, been a couple of decisions in our Circuit rejecting such disputes on the abstention doctrine.)Punitive Damages: In addition to seeking to recover the amount due under the insurance policy, the insured can also pursue a claim for “punitive” damages if the insurer denied the claim in “bad faith.” Punitive damages in this state are governed by statute, and also by case law addressing this claim. According to one case, the insurer is not liable for punitive damages if its position is “neither strained nor fanciful.” Punitive damages are capped by statute in North Carolina, to the greater of $250,000 or three times the actual damages (whichever is greater).Treble damages for Unfair Conduct: The policyholder can also assert a claim to recover “treble” (i.e. tripled) damages where the carrier’s conduct is unfair or deceptive. Such a claim is often based on the insurer’s violation of a provision in the statutes mandating that insurers handle a claim in various ways, including that they conduct a reasonable investigation, promptly investigate the claim, and provide an explanation of the denial to the policyholder. (N.C. Gen. Stat. 58 63 15.)Coverage disputes in North Carolina can quickly become very complicated, and the policyholder and often the insurer may need the services of an attorney experienced in insurance matters.