Wisconsin Life Policy Provisions
You already know the standard life policy provisions: the incontestable clause, misstatement of age, assignments and beneficiary designations. Wisconsin puts each of them in statute, mostly in ss. 632.46 to 632.50, Wis. Stat., and its probate and marital property laws add rules that decide who actually receives the death benefit.
Contestability (s. 632.46, Wis. Stat.)
Individual policies
Under s. 632.46 (1), no individual life policy may be contested after it “has been in force from the date of issue for 2 years during the lifetime of the person whose life is at risk.”
- The clock starts on the date of issue, not the application or delivery date.
- The two years must pass while the insured is alive. If the insured dies 18 months after issue, the policy never became incontestable, and the insurer may still investigate the application after the death.
- Three defenses survive the two years: nonpayment of premium, the misstated age or sex adjustment, and fraud in disability or accident benefits.
Inside the two years, a contest must still meet the s. 631.11 standards for misrepresentation and its 60-day notice rule (120 days when the insurer needs more medical information), which s. 631.11 (6) makes “subject to” s. 632.46. Once the two years have run, even a material misstatement on the application is no longer a defense to the death claim.
Group policies
Section 632.46 (2) runs two clocks for group life. The master policy cannot be contested after it has been in force for 2 years from its date of issue. An individual’s coverage cannot be contested on the basis of the insured’s statements about insurability after that coverage has been in force on the insured for 2 years during the insured’s lifetime. An employee who joins five years after the master policy was issued starts a new two-year period for their own coverage. A statement can be used only if it is “contained in a written instrument signed by the insured person.” A remark made over the phone cannot be used.
Riders and the medical examination
Under s. 632.46 (4), “disability coverages and additional accident benefits may be contested at any time on the ground of fraudulent misrepresentation.” A disability waiver-of-premium rider or an accidental death benefit can be challenged for fraud after the base death benefit has become incontestable.
Section 632.50 adds an estoppel. If the insurer’s medical examiner has authority to issue a certificate of health or declare the applicant acceptable, and reports that, the insurer cannot later claim the insured was not in the required health at issue or delivery, or had a preexisting condition the report did not note. The exception is a report “procured through the fraudulent misrepresentation or nondisclosure by the applicant or proposed insured.”
Assignment of rights (s. 632.47, Wis. Stat.)
Under s. 632.47 (1), the owner of any rights under a life policy or annuity may assign any of them, “including any right to designate a beneficiary.” Whether an assignment is valid is a question of ordinary contract law. The policy’s own requirements, such as written notice to the insurer, apply only “so far as reasonably necessary for the protection of the insurer” against paying twice. They protect the insurer if it pays before it learns of the assignment. They do not let it defeat a valid assignment.
Assignee versus beneficiary. Under s. 632.47 (2), a beneficiary’s rights are subordinate to an assignee’s “unless the beneficiary was effectively designated as an irrevocable beneficiary prior to the assignment.” Suppose a business owner collaterally assigns her policy to a bank to secure a loan. The bank is paid first, up to its interest, and her revocable beneficiary receives the rest. If she had already named her children irrevocable beneficiaries, their rights would come first.
When assignment may be prohibited. Under s. 632.47 (3), only two kinds of contracts may expressly prohibit assignment: a group annuity providing retirement benefits, and an annuity subject to transfer restrictions under tax, employee benefit or securities law. A life policy cannot take the right away.
Funeral assignments. Under s. 632.41 (2), burial benefits may not be made payable to a funeral director except as s. 632.415 allows. That section permits assigning proceeds to a funeral director if the selling intermediary is not the funeral director’s agent, or if the assignment depends on the funeral home delivering the goods and services in a qualifying burial agreement. The owner may still change the beneficiary on written notice to the insurer, and may switch funeral homes after written notice to the current one (s. 632.415 (3)).
Misstatement of age or sex (s. 632.46 (3))
Wisconsin’s rule covers age or sex, because both drive the premium. Under s. 632.46 (3) (a), if either is misstated and the error is not corrected while the insured is alive, “the amount payable under the policy is what the premium paid would have purchased if the age or sex had been stated correctly.” The policy is not voided. The benefit is recalculated.
For example, an applicant states her age as 45 when she is 48 and buys a $100,000 policy at the age-45 premium. At her death, the insurer finds that premium would have bought $90,000 at age 48, so it pays $90,000. An overstated age works the other way and raises the benefit. Because s. 632.46 (1) carves out sub. (3), the adjustment applies even after the policy is incontestable.
Under s. 632.46 (3) (b), if the insured was already beyond the insurer’s maximum issue age when the application was made, the insurer “shall refund at least the amount of the premiums collected.” The insurer would not have issued the policy at any premium.
Designating the beneficiary (s. 632.48, Wis. Stat.)
The owner’s rights
A life policy or annuity may not restrict the owner’s right to make an irrevocable designation at any time (s. 632.48 (1) (a)), or to change a designation that is not “explicitly irrevocable” without the current beneficiary’s consent (s. 632.48 (1) (b)). A designation is revocable unless it explicitly says otherwise. Between rival beneficiaries, “any act that unequivocally indicates an intention to make the change is sufficient to effect it.”
The insurer’s protection and your role
Under s. 632.48 (2), the insurer may set formalities for a change, but only for its own protection. It is discharged if it pays the designated beneficiary before it has “actual notice” of an assignment or change. It has actual notice once its formalities are met, or once the change request, on the insurer’s form, is delivered to an intermediary representing the insurer. When a client hands you the insurer’s change form, signed, and you represent that insurer, the insurer is on notice. If the form sits in your files and the insurer pays the old beneficiary, it is not discharged: it still owes the new beneficiary and may look to you for its loss. Forward beneficiary changes the day you receive them.
Wills, divorce and the slayer rule
- A will does not change a beneficiary unless the contract or the insurer’s bylaws allow a change by will (s. 853.17 (1)). A written designation passes outside probate (s. 853.18 (1) (a)).
- Divorce revokes a former spouse’s designation. An insurance policy is a “governing instrument” (s. 854.01 (2)). Divorce or annulment revokes any revocable designation of the former spouse or the former spouse’s relatives made before the divorce, and they are treated as having disclaimed, so the contingent beneficiary takes (s. 854.15 (3), (4)). The revocation does not apply if the policy, a court order or a property agreement expressly provides otherwise, if the couple remarry each other, or if the insured intended otherwise (s. 854.15 (5)). Federal law can also override the rule for some employer plans (s. 854.26). Ask every divorced client to sign a new designation.
- A killer cannot collect. The unlawful and intentional killing of the insured revokes any designation of the killer (s. 854.14 (2)).
- An insurer that pays the named beneficiary before it receives written notice that the beneficiary is not entitled is not liable for that payment (s. 854.23 (2) (a)).
Marital property and the spouse’s consent
Wisconsin is a marital property state. A policy the insured owns that was issued after the couple married and both lived in Wisconsin is generally marital property, whatever paid the premium (s. 766.61 (3) (a)), and premiums paid with marital property can give the spouse a share of other policies (s. 766.61 (3) (b), (d)). The spouse may then claim part of the proceeds if someone else is named. Under s. 766.61 (3) (e), the spouse can sign a written consent to another person’s designation, which releases the interest to the extent it says. Unless it says otherwise, the consent is revocable in writing and covers only the beneficiary named in it, so a new beneficiary needs a new consent. If a spouse’s written notice of claim reaches the insurer’s home office at least 5 business days before payment, the insurer must hold the policy for 14 business days while the claim is documented (s. 766.61 (2) (c)).
Lesson summary
- An individual life policy becomes incontestable 2 years from the date of issue, but only if the insured lives through those 2 years (s. 632.46 (1)).
- Group life has two 2-year clocks, and only a signed written statement can be used to contest coverage (s. 632.46 (2)).
- Nonpayment, misstated age or sex, and fraud in disability or accident benefits remain open afterward. An authorized examiner’s clean report estops the insurer unless the applicant committed fraud (s. 632.50).
- An owner may assign any policy right, and an assignee ranks ahead of a beneficiary unless the beneficiary was irrevocable first (s. 632.47).
- A misstated age or sex adjusts the benefit to what the premium would have bought (s. 632.46 (3)).
- A designation is revocable unless explicitly irrevocable, and a change on the insurer’s form, delivered to a producer representing the insurer, gives the insurer actual notice (s. 632.48 (2)).
- A will cannot change a beneficiary, divorce revokes a former spouse’s revocable designation, and a killer cannot take (ss. 853.17, 854.15, 854.14).
- A spouse’s written consent releases a marital property interest only for the beneficiary it names (s. 766.61 (3) (e)).