Dear Penny: Can my children get my life insurance if I have not disclosed a terminal illness?

Dear Penny,

I have a $1.5 million life insurance policy with my two children as beneficiaries. I have Spinocerebellar Ataxia Type One, which was diagnosed a year before I purchased the policy. It is a rare condition that is not well known.

This disease will put me to bed eventually. If I die, will the company pay a death benefit? Or leave me when I died of a deranged disease? As I recall, there was no place to indicate Ataxia on the registration form. There were questions about multiple sclerosis, which is well known.

I want to stop this process if there is no benefit to it. I found out in 2014 and bought the plan in 2015.

– Looking for a Single Mom

Robin Hartill [ The Penny Hoarder ]

Dear Desperate,

I cannot promise you with 100% guarantee that your policy will pay the death benefit. But apparently, your children will find that money without any problem.

First, it is rare for insurers to delay life insurance claims or deny them altogether. In 2019, life insurance companies filed new claims for $600 million, according to the American Council of Life Insurers. This is less than 1% of the $78 billion distributed to beneficiaries in the same year.

A waiver occurs when the person dies within two years from the time you get your policy. Basically, if you die within that two-year window, the insurer will investigate your claim for “falsification.”

This can include lying on application forms, such as lying about having cancer or being a drunk driver, or saying you work at a desk when you have a dangerous job. But falsification of material things can also result from an honest mistake. Some people fail to mention the drugs or methods they used years ago, because they forgot.

The company may reject your claim if you die during the competition and find evidence of false claims, even if your death has nothing to do with your failure to disclose. If you lied about having cancer, then you died from being struck by lightning, they may deny what you said. Most claims will still be filed if someone dies within the claim period. It’s just that insurers scrutinize them more.

For you, obviously, two years of controversy have already passed. It would be very unusual for an insurance company to investigate your claim in the circumstances you are describing. But it can still happen if the company suspects fraud.

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“A life insurance provider may deny a claim after the contest period if it suspects that the insured has committed fraud, or if the insured has made an intentional misrepresentation,” said Jason Veirs, president and owner. Opinions of the company Insurance Experts Solutions Inc.an insurance company based in San Diego.

Your situation is difficult. Although the program did not ask you specifically about your medical condition, it may have included questions that required you to disclose any information that was not listed.

Most applications include detailed questions such as, “Have you ever been treated or told by a member of your health care team that you have high blood pressure, heart or joint problems?” or asking general questions such as, “Other than what you have already disclosed, in the past five years, have you consulted or been treated by a physician or other medical practitioner, or received any other undisclosed treatment?”

“Many of these questions will cover each individual’s health history,” Veirs said.

Again, it is not unusual for your beneficiary’s claim to be denied based on the length of time since the policy was issued. You have spent years paying premiums for this policy. It is unlikely that your children will receive your death benefit.

If you’re okay with the hassle, you can continue to make the payments, knowing that your money won’t go to waste. It is very important, however, that you do not let the process go to waste. If the policy is lost and reinstated, you can start a new two-year window.

The big question you need to ask yourself is this: Would having a payday loan make life easier right now? I ask because you signed your letter “Desperate Single Mom.” If you are struggling right now and your children are growing up and independent, you may not need life insurance at all. The purpose of insurance is to protect against financial loss. It is better to decide that you need money in your pocket now than that your children need life insurance payments one day.

My last advice is not for you, Letter Writer, because we cannot turn back time. But for any readers who are shopping for life insurance: It can be tempting not to disclose what you’re applying for, especially if you’re confused about what’s needed. But it’s okay to err on the side of disclosure.

The purpose of buying life insurance is to protect your family financially. Make sure you know for sure if the policy you are buying will cover you.

• • •

Robin Hartill is an economist and senior author on Penny Hoarder. Send your tough money questions to AskPenny@thepennyhoarder.com.