Lack of third-party notice results in accidental policy lapse

One of the challenges with retirement and estate planning is that not all retirement, life insurance and or long-term care policies provide alerts for certain events.

In a recent example, an elderly couple was left without affordable options when they accidentally discontinued their log-term care insurance. The couple’s son had set up an auto-payment option, but the couple accidentally stopped that payment feature during one of their bank visits.

As with other subscription services, such as cable television or Internet, the long-term care insurance company sent notices to the couple. However, the couple’s son, as their designated third party, claims that he did not receive any notices. The couple, perhaps believing their son was handling the matter, didn’t take action on the notices. As a result, the policy lapsed due to nonpayment of the monthly premiums.

That outcome seems hard to believe, considering that the couple had been paying premiums for more than 11 years, at an estimated total of around $50,000. What’s even more upsetting is that the benefits they lost when that policy lapsed totaled around $600,000.

Although the law in this particular jurisdiction may be changing, the long-term care insurer at the time was not required to send notices to third parities via certified mail. One wonders whether the outcome would have been different if the couple had relied on an attorney as their designated third party. An attorney that focuses on estate planning may have insight into notice obligations. If the couple had been represented, they may also have been more inclined to ask questions about the notices they received, rather than ignoring them.

Source: The New York Times, “An Alert When the Policy Lapses,” Paula Span, June 12, 2014


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