An insurance broker in Louisiana is being sued by a widow who claims her husband was not properly notified when it was time to renew his policy, which ended up lapsing before his death.
This real-life case, reported in the Oct. 8 Louisiana Record, brings up a fundamental question about whether or not the agent bears responsibility to make sure a client is made aware when a policy is in danger of lapsing.
In the actual case, the widow’s husband purchased a life insurance policy with a $1 million death benefit back in 2006. The plaintiff asserts that in 2012, the policy was set to renew but the defendants did not notify her or her husband about a payment needed on the policy. The plaintiff said it was only after her husband’s death in August 2014 that she found out about the missed payment, and the carrier subsequently denied her claim.
She said the defendant had an obligation to notify her that the payment was delinquent but failed to do so, and the defendant is accused of negligence and breach of fiduciary duty.
While it may seem the carrier bears the responsibility to notify a policyholder when a policy is about to lapse, it isn’t necessarily that simple.
While primary responsibility for premium notices and reminders lie with the insurer, the agent shouldn’t totally wash his or her hands of the matter when a customer is about to lapse, according to experts at the National Ethics Association about this situation. Beyond looking out for your clients’ best interest in making sure they are fully aware in a potential lapse situation, it is usually in the agent’s best interest to make every effort to avoid a lapse as well, since every time a customer lapses, the agent loses out on renewal commissions.
“The broker has incentive to stay on top of this,” said Steven R. McCarty, Chairman of the National Ethics Association. “It means another commission, although renewal commissions are small in themselves. But that doesn’t necessarily mean they are ultimately responsible. I believe the insurance companies should factor in the costs of a mandatory and proven warning system.”