Douglas A. Turner, P.C.

Now, I know the title does not sound exciting, but there is much money at stake. How much? Millions, and some of it may belong to you if you understand the two-year rule and the one-year rule regarding life insurance death benefits.

Life Insurance and the Two Year Rule

After a life insurance policy is in force for two years, failure to disclose a medical condition on the insurance application cannot be used to defeat coverage. Theoretically, a person could lie through their teeth on the insurance application and the beneficiaries could still collect a death benefit so long as the policy is in force for two years before death.

This rule can be used by the insurance company, too. If an insured dies within that two year window, the insurance company can deny coverage if the insured did not fully disclose his personal and medical history, even if it has nothing to do with the cause of death.

As you can imagine, if an insured dies within that two-year period, the insurance company may make every effort to obtain medical records, look for something that was not disclosed and deny coverage. For example, if the insured is hit by a truck and did not disclose treatment for cancer, the death benefit can be denied. The fact that it was a truck that killed him is not relevant.

The insurance companies are very aware of the two-year rule. Colorado requires that the two-year rule be clearly stated in the policy.

If an insured dies within that two-year window and does not disclose a medical condition, the insurance company has the upper hand. A beneficiary should not just give up the fight. However, it may be costly to recover the death benefit, and recovery will probably be less than the full death benefit.

Life Insurance and the One Year Rule

The two-year rule is not where the real money is. The real money lies with the one-year rule. It is worth millions. The one-year rule has to do with death by suicide. In Colorado, an insurance company cannot use suicide to avoid payment of a death benefit if the suicide occurs more than one year after the policy is in force. The suicide of a policyholder after the first policy year of any life insurance policy issued by any life insurance company doing business in Colorado shall not be a defense against the payment of a life insurance policy, whether said suicide was voluntary or involuntary, and whether said policyholder was sane or insane.

Colorado Law and the Two-Year Rule in Life Insurance Policies

Unlike the two-year rule, Colorado law does not require the one-year rule to be specifically stated in the insurance policy. In fact, the insurance policy typically says just the opposite. For example, the policy may say that the death benefit will not be paid if the insured commits suicide within two years of the policy issue date. Then, when a suicide does occur within that two-year window, the insurance company denies coverage making specific reference to the two-year suicide exclusion in the policy. At that point, most beneficiaries give up. It’s in the contract so it must be so? Right? Wrong! I have seen this scenario on several occasions. Even when directly confronted with the written law, insurance companies will still balk at making payment. However, with a little lawyerly persuasion, the insurance company will pay the full death benefit.

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