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Tillem & McNichol

Len Tillem and Rosie McNichol

Dear Len and Rosie,

My father just passed away. He was 82 years old and was not in good health, especially after my mother’s death. He had a $45,000 life insurance policy.

When we were getting his affairs in order after his passing, we sent in the information to the insurance company to claim his life insurance.

We found out that in September 2006 my father cashed out the policy for only $12,000. We cannot believe this.

There are five children. We think our father was taken advantage of due to his age, health and state of mind due to the passing of his wife.

He had suffered a type of stroke that sometimes made him frustrated and frequently he could not remember what he was trying to say.

We do not believe he cashed out the policy of his own accord.

Is there a way to go back to the insurance company and argue that my father was not really capable of making this decision?

Who would cash out a $45,000 insurance policy for only $12,000?

Kathleen

Dear Kathleen,

It’s more likely than not that your father’s $45,000 life insurance policy had a cash surrender value of only $12,000, which is why he received only that much when he turned his policy back in to the insurer.

Whole life insurance policies are part insurance (the $45,000 face value), and part investment (the $12,000 cash surrender value). The cash surrender value increases over time and eventually can exceed the face value of the policy.

As a rule, cashing in a life insurance policy is almost never a good idea, because you can frequently sell a policy to investors for more than its cash surrender value, or even trade in an old life insurance policy for a fully paid up policy in a tax-free exchange.

We may never know why your father did it, unless the insurance company recorded his conversation with them for “quality control purposes,” which isn’t so likely.

Your father probably decided that he had bought this insurance to take care of your mother, and that he didn’t need to be paying additional policy premiums because she passed away before him.

The insurer isn’t going to accept your explanation of your father’s mistake at face value.

If your father were in a conservatorship at the time he canceled the policy, then his action was and is legally void.

Because he was not in a conservatorship, his action is legally voidable.

However, to void the transaction, you would have to petition the court and prove that your father was, in September 2006, incapable of making his own decisions and protecting himself from undue influence.

This will be difficult to prove, especially if your father was getting through the day on his own.

Unless he was clearly and severely incapable of doing anything to provide for himself, you will likely lose, and any money you spend on lawyers going after this insurance policy will be throwing good money after bad.

For the rest of you readers, don’t just drop a life insurance policy you no longer want.

Instead, review the policy with an independent life insurance agent who isn’t wedded to a single insurance company to see if you can sell it for more money than you’d get if you surrender the policy, or even trade it in.

Len and Rosie

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Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 707-996-4505.

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