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A family member in his early 40s recently suspected he may have cancer due to digestive issues. A life insurance policy for $500k was purchased. A basic medical exam to determine eligibility was done. He had been working with multiple doctors for weeks to determine what was going on and finally, 2 days after the medical exam for the insurance policy, a ct scan was performed. He was diagnosed with late stage GIST cancer. His chances of survival are maybe 50/50 at this point. He has recently taken a turn for the worse and things aren't looking good.

The extended family (myself included) are attempting to get affairs in order and ensure the 9 children and spouse with no job / or major marketable skills will be taken care of.

  1. We are trying to get a plan together and are wondering if we can count on this insurance policy as part of that plan?
  2. What are the chances this will be paid out in the event he doesn't make it?
  3. And, what exactly should I look for in the policy / what questions should I ask to determine if this policy will be worth anything?
  4. Finally, should we inform the insurance company of what is going on at this point?
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You might want to have a family representative ask the doctors office, or hospital, to recommend a financial/legal planner that handles families where a person has a terminal disease. They can help review all your options regarding this patient.

For planning purposes is probably best to expect that the insurance policy will not be paid out. The insurance company will always look at the situation when there is a new policy or an increase in coverage just before a person dies. If the term of the policy was short, for example one year, they may also be suspicious.

The policy should have a section that details what causes of death they won't cover, e.g war. They may also have a section that gives a time frame that limits their payout, e.g suicide in the first year. You would look for something that specifies per-existing conditions, or deaths that happen within the first X months.

Many times as part of the health exam they ask you to fill out a form with the last time you saw a doctor or had a major medical procedure such a a scan or x-ray. If the post exam review of the documents find a discrepancy, they may still cancel the policy. There was a 30 day gap between the date of my insurance exam and the final issuance of the policy. The medical exam was used to set the rate.

The post death review of his case may also find the discrepancy if the time the policy was in force is short.

The worst case would be if the insurance company believed that fraud was committed, and that others knowingly participated in the purchase of the policy.

Telling the insurance company now likely guarantees they will try and cancel the policy. Waiting for the medical situation to be resolved will probably not be a problem. If he survives and the term policy isn't needed for many years, the insurance company will not care about the situation when it was purchased. If he dies soon, the next decision point is to decide if a claim should be made.

You will also want to look at how the policy is paid for. Monthly payments for a policy that will never result in money for the family is a drain on their finances. Then again money paid upfront for a policy that is worthless, would be nice to have back.

  • Very thorough answer. Thank you! I will look over the details and review exact dates. But, I think we'll proceed assuming this policy is worthless and focus efforts on other venues of support. As you said, if he doesn't make it we'll have to decide if a claim should be attempted. If there's any possibility, maybe we go ahead with that. After all, this family has negative net worth. Say we did attempt a claim at some point and the insurance company suspected fraud. The family is judgement proof. No one else participated in any capacity. What's the worst outcome? No further ahead/behind? – maplemale Oct 19 '15 at 21:11
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As its too close to the time a policy was being taken, generally as per the terms one is required to declare such illnesses. This has a very high potential of getting the claim rejected on the grounds of hiding material information.

If you inform them now, chances are they will not issue the policy. If you don't then during claims they would question and not pay anyways.

  • I believe the policy was already issued... but I will check on that. I am more interested in what exactly I check on to determine within a reasonable doubt. Or is this not even worth looking into? For instance, what specifically did he say during is medical exam for insurability? Does this even matter since he technically suspected something more than just an infection etc? – maplemale Oct 19 '15 at 4:23
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    @maplemale he suspected he had the illness and then went to issue a policy? From my experience it takes more than a month to get a policy issued. Did he delay his diagnosis/treatment just for that? I suspect, either way, the claim will be rejected since it is just too suspicious a coincidence. – littleadv Oct 19 '15 at 4:52
  • Yes, he suspected. No, he did not delay diagnosis or treatment. The official diagnosis came 2 days after his insurance medical exam, which he somehow passed though he did not look so hot. However, I just found out (as you suspected) that the policy is not yet underwritten. The insurance agent is of course telling him he should just keep the policy and "you never know, they may accept a claim." Of course, the agent will say that. They want their money. I'm advising them to drop the policy as the $65 a month could be better spent elsewhere. – maplemale Nov 2 '15 at 16:36

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