Life insurance is designed to provide families with a financial safety net in the event that their loved one dies. While only a small number of adults in the United States have an estate plan in place, the majority of adults do in fact have a life insurance policy through an employer, bank, or have established a policy on their own. Unfortunately, life insurance does not always provide the financial security that one would expect. One problem or misstep can rob you and your loved ones of the financial help you need while processing the death of someone close to you. Being aware of common life insurance problems families face will help you prepare for the unexpected.

Denied Claims

The most shocking and painful problem that a family who recently lost someone dear to them can face is a denied life insurance claim. Surprisingly, having a current policy does not always mean that the insurance company has to pay out on a submitted claim. Insurance companies will change their policies and go to surprising lengths to avoid paying on a policy. American General Life Insurance Company found itself in the news when the company refused to pay a widow a $250,000 life insurance policy. The claims adjuster claimed that the policy application was never completed properly and even cited disease diagnoses that the deceased man’s physicians said he never had.

Incorrect Beneficiary

Even if an insurance policy is mentioned in a will with the beneficiary cited, if the life insurance company has a different beneficiary on file, that is who will receive the funds. Failing to update a beneficiary after the named individual has passed away or after a couple has divorced has created problems for many families. It is not unheard of for a widower to attempt to claim a life insurance policy only to find out the named beneficiary is their late partner’s former spouse. In situations like that, the person named may benefit at the direct expense of the loved ones left behind.

Loans Against the Life Insurance Policy

When a person has an emergency expense, getting a loan against a life insurance policy is a way to get access to money without obtaining a traditional bank loan or line of credit. However, borrowing against a life insurance policy could lead to serious issues if a person passes away before repaying the loan. The cash value of the policy is reduced when you borrow against it and can significantly reduce the amount of money that your family actually receives.

Get Advice

Life insurance policies are an important part of an estate plan, and talking to an estate planning attorney about how best to utilize them insures that your family gets the most out of any policy you purchase. The attorneys at MMZ Law understand how difficult it is to choose the right life insurance policy and how stressful it is to make sure no mistakes are made that could affect your family’s ability to benefit from the policy. Call our Claremont, California office to schedule a consultation so that we can begin helping you create an estate plan that fully protects your legacy.




341 W. 1st St. Suite 100
Claremont, CA 91711

MARIVEL M. ZIALCITA is the founder of MMZ LAW, A Professional Corporation, where she practices in the areas of Elder Law – Medi-Cal Planning Asset Protection, Trust & Estate, Special Needs, Conservatorship, Trust Administration, & Probate. Ms. Zialcita is a frequent speaker on trust and estate matters and holds memberships in the State Bar of California, Trust and Estate Section, The San Bernardino County Bar Association, Wealth Counsel and Elder Counsel. She currently assists in the pro bono legal services program at the James L. Brulte Senior Center in Rancho Cucamonga, California. She is based in Claremont but assists clients throughout Southern California.

This information is educational information only and not legal advice.