Life Insurance – Effective Date

It is not an issue seen often by life insurance lawyers, but it does come up.  When is the date coverage is in effect?

Most policies expressly 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 they 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 for failure to pay a premium.

For example, in the 1980, Texas Supreme Court case, Life Insurance Company of the Southwest v. 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 died 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.”

If the insured dies before the policy becomes effective, there is no coverage.  This has been stated by the 1950, Texas Supreme Court opinion, Republic National Life Insurance Co. v. Hall and other cases.

A 1979, Texas Supreme Court opinion styled, Washington v. Reliable Life Insurance Co. said, a policy may also contain a “good health” clause that requires that the insured be in good health at the time the policy is issued or the coverage will not take effect.  A good health clause renders the policy void if the insured was not in good health.  In contrast, a false representation of good health provides a defense only if other elements, such as intent to deceive, are proved.