chapter 11

ESTABLISHING NEED TO PAY DEATH BENEFIT

Before a death benefit is payable by a life insurance company, the beneficiary must provide proof of the insured�s death. A typical life insurance policy contractual provision imposing this requirement states, "We will pay the proceeds of this life insurance policy to the beneficiary promptly upon receipt of proof that the insured has died, if premiums have been paid as required by this policy."

In the usual case, the beneficiary, the policyowner, or sometimes the executor of the insured�s estate will advise the insurer of the insured�s death. Upon receipt of the death certificate or other evidence of death, the insurer will investigate the death claim to determine its validity. The insurer will seek answers to questions such as the following:

TABLE 11-1 Formula for Calculating Death Benefit
The net death benefit payable by the insurance company is calculated by starting with the policy�s face amount or the reduced paid-up amount (if the policy is exercising the nonforfeiture option) and making these adjustments:
Start Plus or minus Plus Plus Plus Equals Less Less Plus Equals	Face amount of the policy (or reduced paid-up amount) adjustments for misstatement of age or sex Amount of paid-up additions, accidental death benefits, or other riders Refund of any premiums paid in advance Any accumulated dividends and termination dividends Gross death benefit Any unpaid policy loans (including any due and unpaid interest) Any due and unpaid premiums Interest on net death benefit from date of death to payment date Net death benefit payable to the beneficiary

What were the date and cause of the insured�s death?

Was the policy in effect on the date of the insured�s death? (For example, had the policy premiums been paid to the date of death? If the policy was for term insurance, had the term expired?)

Was the cause of death excluded from the coverage provided by the policy? (For example, was the death a suicide within the exclusion period? Was there an aviation or war exclusion clause?)

Is the policy contestable and if so, is there a reason to contest the claim? (Was the insured�s age, sex, or medical history misrepresented, for example?)

Disappearance of the Insured

In the typical situation, there is clear evidence that the insured has died. In such cases, the date and cause of death are known, and there is normally no difficulty in determining whether and when the death benefit is payable. However, there are exceptions. Sometimes there is no clear evidence about the cause of death or even that the insured has died. These cases are known in the law as mysterious disappearances.

If an insured disappears and the policy remains in force, at what point does the insurance company become obligated to pay the policy�s death benefit? The common law answer to this question was to establish a rebuttable presumption of death if a person was absent from his or her usual residence without explanation or communication for 7 continuous years.

There are some qualifications to this general statement. In some jurisdictions, the period of absence is 5 years. Some jurisdictions do not specifically refer to the absence of communication from the missing person as a requirement, and some permit a shorter period of absence if the missing person was known to have been exposed to a specific peril at the time of his or her disappearance.

Some authorities have criticized the common law rule as being "arbitrary, unpractical, anachronistic, and obstructive. The circumstances of each case," critics contend, "should be the basis for decision, and there should be no fixed or uniform rule."A few states have agreed with this view and have responded by enacting the Uniform Absence as Evidence of Death and Absentee�s Property Act. This act abolishes any presumptions of death and states that a jury will decide in each instance when and if death has occurred based on the facts appropriate to that case.

The common law rule has been codified by many states. These state laws generally establish a set of criteria to determine whether death will be deemed to have occurred. Under these laws, a person may be presumed dead if four criteria are met. Once the presumption of death has been established by a court, the person will be declared dead and his or her property may be distributed based on that presumption.

The four criteria that must be met to establish a presumption of death are as follows:

The person must have been continuously missing from his or her normal place of residence for a fixed period of time, traditionally 7 years.

There must be no reasonable explanation for the absence. If a reasonable explanation for the disappearance can be established, there can be no presumption of death. For example, there may be evidence that the person has simply run away or is in hiding. This is known as a purposeful disappearance, and it precludes a presumption of death based upon the disappearance. A purposeful disappearance may be deemed to exist if there is evidence that the missing person is a fugitive from the law or may be trying to avoid creditors or obligations of support.

There must be a total absence of communication from the missing person to those who would reasonably be expected to have heard from the person if he or she were still alive. Of course, if there is credible evidence of any communication from the missing person to anyone during the specified time period, there can be no presumption of death.

It must be established that a diligent and unsuccessful search has been conducted for the missing person.

Reappearance of the Missing Person

It sometimes happens that a person who has been declared dead is later discovered to be alive. If the insurance company has paid the full death benefit based upon the presumption of death, the majority rule is that the insurance company can recover the policy proceeds from the beneficiary plus interest.This rule does not apply, however, if the insurance company and the beneficiary settle the beneficiary�s claim for an amount less than the full proceeds. In this circumstance the courts have held that there has been a compromise settlement of the beneficiary�s claim. The agreement signed by the parties as evidence of that settlement is a contract that precludes a recovery of the amount paid by the insurance company if the insured later reappears.

It is important to note that the presumption of death under common law and under state statutes is a rebuttable presumption. This means that anyone can present evidence at any time that the missing person is still alive. If this occurs, a court will be required to weigh the evidence and determine whether there is sufficient credible evidence to overcome the presumption of death.

Disappearance Attributed to Common Disaster

If a person is missing as a result of a common disaster or specific peril such as an explosion, airplane crash, flood, or earthquake, there may be no need to wait until the time period for the presumption-of-death rules to elapse. In these cases, if there is sufficient circumstantial evidence to establish that the missing person was killed in a common disaster or other specific peril, he or she may be declared dead at an earlier date. If a person is seen clinging to a raft that is swept over Niagara Falls or is a passenger on an airplane that explodes in midair, the fact and date of death may be established by circumstantial evidence without waiting for a lengthy period of time to pass.

The common law rule and the statutes do not generally prescribe any particular date (during the period of absence) on which the missing person is presumed to have died. They simply prescribe that at the end of the applicable period it is presumed that the missing person has died. There is a minority view that the missing person is presumed to have died on the last day of the applicable period. There is, however, no reason to prefer that date over any other date, and in fact, a date at the beginning of the period is more likely to be accurate.

As can be readily seen, the date selected can make a significant difference for many purposes, such as remarriage, payment of pension benefits, inheritance, and the payment of life insurance premiums. If the actual date of death is important, the interested parties may introduce whatever evidence they have to support their claim of a specific date, and the court will make a determination.

Beneficiary�s Filing of Death Claim

When an insured person disappears under circumstances that suggest that he or she has died, the beneficiary will usually file a death claim with the insurer. If the insurer is not satisfied that the information provides due proof of death and denies the claim, the beneficiary has the following options:

He or she can petition a court to declare the missing person dead.

The beneficiary may sue the insurer for payment of the death benefit.

If neither of these options is successful, the beneficiary must await the passage of time and the arrival of the presumption of death under the appropriate statute or under that jurisdiction�s common law rule. During this period, the beneficiary or policyowner must decide whether to continue paying premiums on the policy. If there is sufficient equity in the policy, there are several options. The beneficiary may elect to (1) let the policy cash values pay the premiums, (2) take a reduced paid-up policy, or (3) take extended term insurance.

If the policy terminates before the expiration of the presumption-of-death period, the policy�s beneficiary may still be able to obtain benefits under the policy. However, this can be done only if he or she can establish that the insured died while the policy was in force. This is usually an extremely difficult goal to accomplish. Consequently, it is usually in the beneficiary�s best interest to keep the policy in force until the statutory period of time has elapsed. If it should later be discovered that the insured actually died years earlier, the beneficiary will be entitled to a refund of premiums paid after the actual date of death and, in many cases, interest on the proceeds from the actual date of death to the date of benefit payment.

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