After a client dies, you have the important job of shepherding the grieving family through the process of claiming a life insurance benefit. Experienced insurance advisors say the process requires a combination of diligence and compassion.
“You should take the claims process as seriously as you take the sale,” said Sarah Brown, partner with Al G. Brown & Associates in Toronto. “Hold the client’s hand, because they need a lot of support. It’s not just a transaction at that time. There’s a lot of emotional support you need to provide. And that’s not something you can prepare for.”
Zainab Williams, founder and principal financial planner with Elleverity Wealth Management in Milton, Ont., said one of the most important steps you can take occurs much earlier — at the time of the sale. “It’s critical for clients to be walked through the [application] questionnaire,” she said. They may not realize the importance of answering honestly and providing full disclosure, even for seemingly small details such as a past surgery.
The question regarding non-smoker status, for example, is frequently misunderstood. “That means 12 consecutive months of not smoking,” Williams said. “An advisor has to be diligent to tell the client, ‘You just said you’re a non-smoker, but you’ve also mentioned you occasionally take a puff. That makes you a smoker.’”
Williams completes an annual review checklist with her clients to determine whether anything has changed in their lives that may affect their policies and broader financial plans, such as a new home purchase, a new child or changed marital status, which could require a beneficiary update.
Roberta Tasson, partner with the Magnes Group Inc. in Oakville, Ont., said you should ensure the product is suitable for the client’s needs and financial situation at the time of purchase. Make sure your recommendations comply with provincial regulations, and keep detailed records of your conversations with clients along with any decisions that result.
Elli Schochet, managing partner with Al G. Brown, recommends asking clients to provide multiple ways to contact beneficiaries, even though the beneficiary form doesn’t explicitly require that information. The firm began asking for this after two cases in which it was unable to locate a client’s beneficiary.
Documents required during the claim process can vary depending on the insurer, the policy amount and how long ago the policy was issued. Typically, for amounts less than $500,000, you will need to provide a copy of the death certificate and a claimant statement form signed by the beneficiary, said Alicja Majka, senior policy service administrator with Al G. Brown. Larger amounts, depending on when the policy was issued, may require more forms, including a physician’s statement.
Deaths that occur abroad are more complicated, requiring a copy of the client’s passport, itinerary, flight tickets and a special form explaining when the client left the country, the purpose of the trip, accommodation details and more. The beneficiary will also need to obtain a death certificate from the foreign government, and details on whether the body was returned to Canada, Majka said.
Williams notes the beneficiary will need to have the death certificate and other relevant documents translated at their own expense if they’re in another language.
A straightforward death claim can take two to three weeks to be processed. The process could take longer if the client named the estate as beneficiary. In that case, the benefit amount forms part of the estate and is subject to probate fees. “There are circumstances when the estate should be the beneficiary,” Schochet said. “But it complicates the process.”
Failure of a policy to pay a death benefit is rare, and typically occurs only if the client did not disclose material health information or died by suicide within the policy’s first two years.
In some circumstances, you could be held responsible, Tasson said. Examples include: failing to disclose important information provided by the client during the application process; providing inaccurate or misleading information; recommending an unsuitable life insurance product; failing to properly complete the application process and submit required documentation; and failing to ensure the policy was issued or premiums were paid.
If Al G. Brown knows that a client missed a payment, Schochet said the firm reaches out to ensure payment is made so the policy doesn’t lapse. “We chase it down to make sure the premium gets paid,” he said.
While errors and omissions insurance typically covers the costs of legal fees, court costs and damages related to contributory negligence, Tasson said, such an outcome can have significant reputational consequences. “Clients may lose trust in the advisor, leading to a loss of business and referrals.”
This article appears in the May issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.