When Does Life Insurance Coverage Begin

Life insurance lawyers will see many reasons for denial of life insurance benefits.  Occasionally, one of the reasons is that the policy had not become effective at the time of death.

Most policies state the “effective date” of coverage.  This date may be earlier than, or later than, the date the first premium is paid or the dates the policy is issued or delivered.  Often, a policy may have an effective date, an issue date, and a policy date, and may all be different, causing confusion or misunderstanding.  If the dates differ, disputes may arise over when the policy actually took effect or terminated.  The effective date can be important in setting the due date for subsequent premiums and thus the date of any lapse or failure to pay a premium.

The 1980, Texas Supreme Court opinion styled, Life Insurance Company of the Southwest v. Overstreet illustrates how confusion can sometimes create problems for the beneficiary.  In Overstreet, a policy provided that its effective date was March 15th and each annual premium was due on the anniversary of that date.  The insured did not pay his first premium until April 18th.  Two years later, the insured died while his premium was due.  If the effective date was measured from March 15th, he dies outside the grace period and had no coverage.  If measured from April 18th, he died within the grace period, and within coverage.  The Texas Supreme Court held there was no coverage, following the majority rule that “a definite statement in the policy of the date on which annual premiums will be due is the due date.  Such a statement of the due date controls even over a provision stating that a policy will not be in force until it is initially delivered and the first premium is paid during the good health of the insured.

Any time a life insurance company refuses to pay benefits to a beneficiary, regardless of the reason, it is important that an attorney experienced in dealing with life insurance issues be consulted.