Ambiguities in Life Insurance Plans you Should be Aware of

(STL.News) Ambiguity is present in multiple contracts and agreements, usually so the person issuing the document has some flexibility on the policies.  Sometimes terms are unintentionally ambiguous because the issuer didn’t have the forewarning of how the terms could be interpreted.  With that said, there are a few ambiguities you should be aware of for your own protection.

What is Ambiguity in Life Insurance?

To be ambiguous implies that the text’s meaning is up for debate or isn’t explicitly stated.  An example of this is if an insurer says that you will be covered in the event of a fire unless it’s deemed man-made.  However, a fire that isn’t man-made, like in the event of a lightning strike or dry foliage igniting, may be considered man-made because there is reason to believe your actions could have prevented the fire in the first place.

With that definition, every fire would be man-made even if proven otherwise.  An insurer may get away with not reimbursing your damages due to the ambiguity of the policy.

The Grey Area of Life Insurance for Drug Overdose

Life insurance policies will cover you from accidental death or disability, but whether or not they reimburse you depends on the cause of your death.  This article by PolicyScout gives the example of a drug overdose, as the grey area is so immense that you may not be reimbursed regardless of how you or your loved one died.

Accidental overdose from prescription medication is often covered, but an investigation will take place to determine if it was intentional or not.  However, accidental overdose of an illegal substance will almost always be denied unless the said drug was consumed by mistake.  This is usually proven by investigating the recently deceased relationship with drugs before death.

The Grey Area of Life Insurance for Suicide

Suicide is another grey area in life insurance policies because there are multiple steps to ensure the policyholder isn’t suicidal before receiving life insurance.  A suicide clause is issued to ensure that the policyholder doesn’t commit suicide in the range of two to three years.  Policyholders must also state on their application whether they have had thoughts of suicide.

Oftentimes a history of suicidal thoughts or attempts will make you ineligible to take out life insurance at all because you’re deemed as a financial risk.  Since suicide cannot be claimed as an “accidental death,” the family of the recently deceased will not be able to be reimbursed unless the policyholder has had life insurance for a considerable amount of time.

Why Insurance Policies Should Favor the Insured

There are many instances where ambiguity makes it near impossible for the insured to receive reimbursement without court intervention.  In Gregory Packaging, Inc., v. Travelers Prop. Cas. Co. of Am, the court found that a factory had to shut down because of the discharge of an unsafe amount of ammonia that involved direct physical damage or loss to the property.

The carrier argued not to pay the insured because it didn’t result in anyone’s actual harm in the building. After all, no one was in the building when the release of ammonia occurred.  However, the court deemed that, regardless of no deaths or disabilities occurring, the building resulted in physical loss because no one could work until the structure was restored.

Key Takeaways

Due to the Gregory Packaging, Inc., v. Travelers Prop. Cas. Co. of Am case, the policyholder was able to bounce back from their physical loss.  Although you should always read the life insurance policy before purchasing, understand that life insurance is a business.  It’s essential to see through the red tape to ensure you’re appropriately covered.