DISCLAIMER: Nothing contained herein is intended to be legal advice.
Murphy’s Law is a rule that states, “if anything can go wrong, it will.” So, what does Murphy’s Law have to do with accepting life insurance assignments?
A beneficiary’s rights to receive the proceeds of a life insurance policy arise under contract and insurance law. Through an assignment of life insurance, a beneficiary can assign all or a portion of her life insurance benefits to a funeral home. The extent to which these rights can be transferred depends on the assignment provisions in the insurance policy, the intention of the parties as expressed in the assignment form, and the actual circumstances of the assignment.” Generally, a life insurance benefit is assignable under the terms of the provisions of the life insurance policy; the beneficiary intends to assign to the funeral home all or a portion of the life insurance benefits; and the actual circumstances of the assignment are normal: the beneficiary is competent to sign a legally binding contract and understands that she is assigning the benefit to satisfy the funeral contract.
The hazards of accepting life insurance assignments begin at the arrangement conference. The funeral arranger completes her arrangement with the family of the decedent. She then explains to the family that her funeral home expects payment from all families it serves prior to the funeral service, and that the acceptable forms of payment are cash, check, debit card, credit card, or any other form of immediate payment. This is when she is advised by a family member that the decedent purchased a policy of life insurance, or has a life insurance benefit through the decedent’s employer, and directed the family to use the life insurance benefit to pay for the funeral charges. After discussion, it is determined that either the family has no other means of paying the funeral home charges except through an assignment of life insurance benefits, or that the family members simply do not desire to pay for the funeral charges other than through the life insurance benefits.
What do you do? What DO you do?? In my more than 19 years of experience in the life insurance factoring business, I have never known a funeral home owner who would rather accept payment through a life insurance assignment than receive immediate payment prior to the funeral. Nor have I met a funeral home owner who will turn away a family simply because a life insurance assignment is the only means of receiving payment for the funeral.
So, the verification process begins. According to statistics, there are approximately 850 life insurance companies operating in the United States today. The policies and procedures of verifying life insurance benefits and confirming beneficiaries vary among life insurance companies. In addition, not all life insurance companies even accept third party life insurance assignments. Most of the more common life insurance companies do accept funeral home life insurance assignments, and typically verify over the phone, or through a written verification process. The funeral arranger calls or faxes a request for verification to the life insurance company’s claims customer service department. The information provided is a summary of benefits only, and not a guarantee of payment.
All the right questions are asked: Is this the correct policy number? What is the date of issue of the policy? What type of policy is this: whole life, Term, modified whole life, graded death benefit, accidental death, employer-employee group, Federal Employees Group Life Insurance, or state-issued group life insurance? Is this an annuity, a union or other employer-funded (non-insurance) death benefit, or some other form of life insurance or non-insurance death benefit? What is the insured’s date of birth on the life insurance application? Is the policy in force? Is the policy contestable? Has the policy lapsed and been reinstated; if so, when? Has the beneficiary granted an assignment to another funeral home, cemetery or casket company? What is the face amount of the life insurance coverage? Are there any outstanding loans that will be deducted from the final amount of life insurance coverage? Were there any premiums due on the policy on the date of death of the insured? If so, how much, and for what premium periods? What is the net amount payable under the life insurance policy after deducting outstanding loans and premiums due? Who is the primary beneficiary, and what is the relationship of the beneficiary to the insured? Are there contingent beneficiaries, and, if so, what are their names and relationships to the insured?
The insurance company representative has verified that all is in order, the funeral home proceeds with the funeral, files the life insurance claim with a certified death certificate, and Murphy’s Law kicks in!
In a follow-up call to the life insurance company, the funeral director is advised that the funds for the funeral assignment were mailed to the beneficiary and have already cleared the insurance company’s bank account. The funeral director is advised that the insurance company accepts funeral home life insurance assignments “as a courtesy, only to the funeral home”, and has no obligation to send the funds to the funeral home. Upon calling the beneficiary, the funeral director is advised that the insurance proceeds intended for the funeral assignment have been spent already; that the beneficiary has no means to reimburse the funeral home the funds, and that the funeral home can feel free to sue the beneficiary for the funds. The funeral home is the loser.
Another funeral director receives a check for her life insurance assignment. The check is short hundreds of dollars. Upon calling the life insurance company, the funeral director is advised that the date of birth on the application for insurance varied from the date of birth on the certified death certificate and the insured’s birth certificate by three years. Since the insured was three years older than she disclosed on the original application for insurance, the life insurance company has adjusted premiums for the term of the life of the policy, and deducted hundreds of dollars for the age discrepancy.
The next funeral director calls the life insurance company, and is told one of the following: The life insurance policy lapsed and was reinstated in the two years next preceding the insured’s death, making it “contestable”. In investigating the insured’s reinstatement application, it was determined that the insured failed to disclose some “health conditions”, so the policy is void and the insurance company will only refund some premiums paid, plus interest. Or one of the following occurs: the beneficiary granted a prior assignment to an out-of-state funeral home that shipped the body to her funeral home, and the prior assignment was paid, rather than her assignment; there was an outstanding loan on the policy not disclosed during verification, so the check for the assignment will be less than the amount assigned; there were premiums due on the insured’s date of death that are being deducted from the funeral home’s check; the person who signed the assignment was not the designated beneficiary, as confirmed during verification, and the minor children of the insured are the beneficiaries, so those insurance benefits cannot be assigned to the funeral home to satisfy the funeral contract; or there was a second beneficiary not disclosed during verification who refuses to assign to the funeral home, so only half of the amount of the original assignment will be paid to the funeral home. The list goes on!
Efforts to collect funds from life insurance companies in circumstances similar to the above are usually unsuccessful, because the life insurance company asserts that there is no contractual relationship between the funeral home and life insurance company.
Thus, losses due to the acceptance of life insurance assignments occur, for many different reasons. The only vehicle through which the funeral home owner can insulate herself from such losses is to factor life insurance assignments through a financially strong and reputable non-recourse life insurance factoring company. Unfortunately, among the dozens of such companies operating in the United States today, only a few offer non-recourse funding of life insurance assignments. Almost all offer only full recourse funding, holding funeral home owners fully liable for its losses due to insurance company or other errors, including negligence on the part of the life insurance factoring company’s employees and staff in verifying, processing and collecting on life insurance assignments. Working through full recourse factoring companies, the hazards of accepting life insurance assignments still all apply.
Good luck dodging the potholes and pitfalls! FBA
Danny Smith is Director of Business Development for North Carolina Mutual Financial, LLC, a nationwide life insurance factoring company and a wholly owned subsidiary of North Carolina Mutual Life Insurance Company. He is recognized by his peers as a leader in the life insurance factoring industry, and has been involved in over 100,000 life insurance claims during the span of his nearly 20-year career. Danny can be reached at 757-714-7156 or by email at [email protected]
The process of transferring rights of a Life Insurance Policy is called Assignment. There are 2 types of Assignment:
1. Absolute Assignment
2. Conditional Assignment
Conditional Assignment means that the Transfer of Rights will happen from the Assignor to the Assignee subject to certain terms and conditions. If the conditions are fulfilled then only the Policy will get transferred from the Assignor to the Assignee. Or the policy will get transferred from the Assignor to the Assignee till certain conditions are fulfilled. Once the conditions are fulfilled, the policy automatically gets transferred back to the original owner, i.e. the Assignor.
Let’s take an example:
Rahul owns a Life Insurance Policy of Rs 5 lakhs. He needs to take a loan for his daughter’s school admission. He thought of doing so by taking a loan from the insurer itself or any bank against his Life Insurance Policy of Rs 5 lakhs that he owned.
However, to take a loan from the insurer itself or any bank, he needed to transfer the rights of the Insurance Policy to that entity. Thus he would have had to perform Conditional Assignment of the policy to that Bank. Then the bank would be able to pay out the loan money to him by taking the Insurance Policy as collateral. Thus, if Rahul failed to repay the loan, then the bank would surrender the policy and recover their money.
Once Rahul’s loan is completely repaid, then the policy would automatically come back to Rahul. In case, Rahul died before completely repaying the loan, then also the bank can surrender the policy to get their money back. This type of Assignment is called Conditional Assignment.
Example in real life of Conditional Assignment happens in case of an Insurance Policy being taken by the employer as a perquisite for the employee and it would be given only if he stays with the company for at least 5 years. Then the policy would be purchased by the employer on the employee’s name, but it would get transferred to him only when he completes 5 years. Once the employee completes 5 years of service, the policy gets transferred to him. This type of assignment or transfer of rights of a Life Insurance Policy is called Conditional Assignment.
Rupanjali Mitra Basu
Graduate (Economics) and a Post Graduate in Money and Finance with more than 10 years experience in Training with well-known organisations. Currently taking care of the Content Development for Website at MyInsuranceClub
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