Don’t Fall for the Burial Insurance Blow-Off

June 4, 2009

By Angie Moreschi:

Burial insurance is supposed to provide peace of mind that you won’t burden your loved ones with your funeral expenses. Unfortunately, for some, it turns into a battle for those left behind. A curious case recently came to our attention from WTSP TV, the CBS station in Tampa, Florida. (See video above).

An 84-year old woman died of cardiac arrest two years after buying a $5000 burial insurance policy. She paid all her premiums on time, but when it came time to cash in the policy, her son says the company refused to pay. How common is this, and what should you do about it?

Click “read more” below to learn more about this case and tips on how to protect yourself when buying life insurance.

They Took the Gamble

Selling a burial insurance policy to an 82-year old woman has inherent risk. The insurance company here, Bankers Insurance and Casualty Company, would have been happy to take her premium payments for many years had she lived to be 92. Unfortunately, as fate would have it, that was not to be.

The way insurance works, the company gambles the policy holder will pay more in than they have to pay out. In most cases, it works out that way. But when it doesn’t, the company is still obligated to pay off the policy. Unfortunately, many insurance companies don’t part with their money quite that easily.

In this case, you have an 84-year old woman who died of cardiac arrest. The company told her son they didn’t want to pay, because she had a pre-existing heart condition that was not disclosed. When he proved that wasn’t the case with her medical records, he says they then claimed it was because she had undisclosed renal problems. Something he also says is not true.

Either way, come on. She was 82 years old when they issued the policy. The real pre-existing condition is that she was old, which they were well aware of. They took the gamble of giving her a policy and lost.

The Three “D’s”

Many of these companies, at times, employ a strategy known in the industry as “The Three D’s.” Deny. Delay. Defend.

Here’s how it works. Deny a claim. If that doesn’t work to make the person go away, delay the response to complaints with red tape and bureaucracy. And for those few tenacious, persistent few still trying to get their money, defend your position that you don’t owe the claim amount.

“It’s a technique that’s been used for years,” says Consumer Warning Network founder Attorney Chris Hoyer. “They know by denying the claim, they’re going to get rid of 50% of the claims. Most people just walk away thinking that’s the way it is.”

Hoyer says the best thing you can do if you find yourself in this position is to fight, fight, fight. “We see far too much of this blow-off, rip-off corporate culture, today. The more consumers who stand up against it, the better off we’ll all be.”

According to WTSP, the insurance company in this case, Bankers Insurance and Casualty Company, released a statement saying in part:

“We encourage all policy holders to read their policy, which clearly provides information about contestability and rescission. The contestability provision is an industry-wide practice, and exists to prevent insurance fraud. When a death occurs within two years of the policy effective date, we investigate the circumstances surrounding the original application. The investigation includes procuring medical records and information from healthcare providers of the policyholder. If relevant information is found in the investigation that was not disclosed on the application, a policy is rescinded and all premiums refunded to the policyholder.”

Contestability and rescission: Nice words big companies use to blow-off the little guy, who bought a policy, paid premiums in good faith, and thought he would be covered in a time of need.

Tips to Protect Yourself When Buying Life Insurance

1. Life Insurance should not be used as a retirement plan:

The purpose of life insurance is to provide for dependents or heirs upon your death or to cover the cost of expenses like a funeral, which you, otherwise, could not afford
Life insurance is a bad investment. Investing in a common IRA will give you a better return on your money

2. Avoid Vanishing Premiums:

Beware of sales people who say a policy will “pay for itself”
The projections that interest will pay for the premiums after 5 years are often based upon overly optimistic, unrealistic interest rates
When they implode it’s catastrophic, because now the premium is so high you can’t afford it, because you’re older

3. Churning: Replacing Policy Rip-offs

It’s never worth it to replace your old policy with a new one, which they deem as “better
There are so many upfront costs with an insurance policy that it’s hard to make that money back. You’re paying those costs in the first few years of the policy.
Agents make a lot of money on fees by selling you a new policy. That’s why they want you to “upgrade.”