227 passengers and a crew of 12 boarded Malaysia Airlines Flight 370 on March 8th in Kuala Lumpur, bound for Beijing.
They are literally lost, and tragically presumed dead.
How does a situation, where there is no proof or confirmation of death, affect a life insurance payout after death?
Quick Article Guide:
- When is a Person Declared Legally Dead?
- Foreign Jurisdiction
- Life Insurance and Legal Payouts
- Reasons for Payout Delays
- Travelling Outside the U.S.
- Questions About Foreign Travel
When is a person declared legally dead?
In the US, if a body can’t be produced or positive identification made, there’s generally a seven year waiting period before an individual will be declared legally dead and a death certificate is issued.
This could result in a long delay before surviving family members would be able to file a life insurance claim and received the much needed income replacement for the family’s lost breadwinner.
Depending upon the case, Insurers will often expedite this process. In the case of Malaysia flight 370, there will be lawsuits as well as life insurance claims. The airline has already has declared all lives lost. While producing more questions than answers, this declaration has helped open the way for families to be begin making claims.
Local law, as well as international law, specify how investigations are handled. An international law known as the Montreal Convention specifies where cases may be brought. The families can sue, for example, in the country where the passengers bought the ticket, where the airline is based or their final destination.
There were three US citizens on board Malaysian flight 370. Their families would be allowed to sue Malaysia Airlines in US courts.
Beyond life insurance considerations and when a life insurance payout after death is made , there are airline liabilities. Reportedly, the first payouts from Malaysia Airlines were for $5000 (US) per passenger, to help with initial expenses for grieving families.
Eventual legal settlements are expected to reach the hundreds of thousands of dollars to millions. The court will look at the descendants age of death, their profession and lost earning potential, and ages of family members directly affected financially by the death.
Many of Malaysia Airlines’ expenses will be covered by insurance policies which cover a plane and its passengers. Coverage averages between $2 billion and $2.5 billion per aircraft, including about $10 million per passenger, according to Brian Havel, a law professor and director of the International Aviation Law Institute at DePaul University.
When there are no questions or unusual circumstances surrounding a death, and with a death certificate produced, life insurance companies generally pay claims within a matter of weeks if the policy has been in force for two years or more. Within the first two years there is a contestability period.
What this means is they’ll investigate to find out if you made any misrepresentations on your policy application. If the misrepresentation is “material”, meaning that had they known about it at the time of underwriting, they would not have offered you insurance, then they can deny the claim.
Life insurance companies lose roughly 12 billion dollars annually to fraudulent claims. Circumstances could be anything from lying on an application to faking a death. Sadly, there were reportedly 36 fraudulent death claims in the 9/11 tragedy. As you would expect, the cost of fraud is passed down to the honest policyholders only wishing to protect their families.
Fortunately, the answer is generally YES. The life insurance policy you bought more than two years ago will typically cover you wherever you travel.
You must be honest about your travel….it’s on just about every insurance company’s application. If the trip was planned prior to applying for the life insurance it must be notated on your policy. If the travel was not planned prior to applying for the life insurance, you should be full covered. Check with your agent or the company to be verify.
Most life insurance applications will ask if you’ve traveled outside the US in the past 2 years, and have plans to travel outside the US in the next 2 years. Be honest about what you tell the insurer as this could impact your life insurance payment after death.
If travel was/will be for less than 3 months, it’s typically a non-issue for destinations such as Canada, and Western Europe. If there’s more than 3 months of travel, additional questions will be asked. Some insurers are OK with up to 6 months abroad. If you fall within this category, let us know so we can put you with the correct group of insurers.
“Less modern” countries or those in conflict can be problematic. Insurance companies consider economic conditions of the country, health care, disease, standards of public health and sanitation, availability of emergency medical facilities, and cultural attitudes towards general health and safety.
US State Department warnings are also considered. If a country in undergoing a civil war, drug lord battles, or if there is ongoing military or civil unrest, these countries are considered to be dangerous and are a higher risk and typically present a larger challenge in underwriting.
They’ll often ask what you’re going to be doing….if you’re doing missionary or volunteer work in a rural or economically depressed area, you’re generally at more risk than conducting meetings in a major city. Insurance companies also look at the proximity to when your trip is scheduled.
If you are purchasing the insurance within a month or two of travel, the insurance company will look at these factors more carefully. In fact, some companies will even postpone your application until you return.
For these reasons, if you know you have an international trip planned and you want to be insured before you go,talk to a life insurance agent representing multiple companies. Better yet, get your policy before it’s an issue!