Wisconsin Life Practice: Worked Cases

The cases below apply Wisconsin’s life insurance rules to situations a producer meets. For each one, find the rule that governs, apply it to the facts, and only then reach the answer. Names and numbers are hypothetical.

Case 1: A death in month 20

Dana applied for a $250,000 term policy and answered “no” to a question about treatment for diabetes, although she was taking insulin. The policy was issued, and she died 20 months later of an unrelated cause.

1. Is the policy incontestable? No. Under s. 632.46 (1), Wis. Stat., an individual policy becomes incontestable only after it has been in force from the date of issue for 2 years during the insured’s lifetime. Dana died before that.
2. Can the insurer rescind? Only if it meets s. 631.11. Dana knew her answer was false. The insurer must show that it relied on the answer and that the answer was material or made with intent to deceive. A diabetes history plainly affects the decision to insure, so the misrepresentation is material even though diabetes did not cause her death.
3. Timing. The insurer must notify of its intent to rescind or defend within 60 days of learning the facts, or 120 days if it needs more medical information (s. 631.11 (4) (b)).

Variation: if Dana had died 26 months after issue, the insurer would have to pay the full benefit despite the false answer.

Case 2: The wrong age, and a rider

Ray stated his age as 52 when he was 55. Four years later, he dies. His premium bought $200,000 of coverage at 52, but would have bought $180,000 at 55.

• Age. The policy is past its two-year period, but s. 632.46 (1) carves out misstated age and sex. Under s. 632.46 (3) (a), the insurer pays what the premium would have bought at the correct age: $180,000. It does not deny the claim.
• Rider. Suppose that in year 3 Ray had claimed under a disability waiver-of-premium rider, and the insurer found he had fraudulently hidden a spinal condition on the application. Under s. 632.46 (4), disability and additional accident benefits may be contested “at any time” for fraudulent misrepresentation. The insurer may deny the waiver, but the base death benefit stays incontestable.

Case 3: The form in the producer’s briefcase

On Friday, Tom signs his insurer’s change-of-beneficiary form naming his partner instead of his sister and hands it to his producer, who is the insurer’s appointed agent. The producer means to send it Monday. Tom dies Saturday, and the insurer, unaware of the change, pays the sister.

Tom’s designation was revocable, so he needed no one’s consent (s. 632.48 (1) (b)). Under s. 632.48 (2), the insurer has actual notice once a change request on its form is “delivered to an intermediary representing the insurer.” It had notice on Friday, so paying the sister does not discharge its obligation to the partner. The insurer may in turn have a claim against the producer who held the form. Forward beneficiary changes the day you receive them.

Case 4: Divorced, never updated

Mark named his wife, Lisa, as primary beneficiary of his individual life policy and their two children as contingent beneficiaries. They divorced, Mark never changed the policy, and his later will leaves “everything” to his brother. Mark dies.

1. An insurance policy is a “governing instrument” (s. 854.01 (2)). The divorce revoked the revocable designation of Lisa (s. 854.15 (3) (a)), and Lisa is treated as having disclaimed (s. 854.15 (4)). The revocation also reaches Lisa’s relatives, but only those not related to Mark (s. 854.15 (1) (d)), so it does not reach Mark’s own children. The children take.
2. The will does not change the beneficiary unless the policy allows a change by will (s. 853.17 (1)). The brother takes nothing from the policy.
3. If the divorce judgment had ordered Mark to keep Lisa as beneficiary, the revocation would not apply, because a court order provided otherwise (s. 854.15 (5)).
4. If the insurer paid Lisa before anyone gave it written notice that she was not entitled, it is not liable for that payment (s. 854.23 (2) (a)). Lisa would have to return the money to the children (s. 854.25 (1)).

Case 5: The bank’s assignment

Ann owns a $500,000 policy with her husband as revocable beneficiary. She collaterally assigns it to her bank to secure a business loan and dies owing $150,000. Under s. 632.47 (2), a beneficiary’s rights are subordinate to an assignee’s, so the bank collects what it is owed and her husband receives the balance.

Variation: if Ann had named her children irrevocable beneficiaries before the assignment, their rights would not be subordinate to the bank’s. That is why lenders insist on an irrevocable beneficiary’s written consent before accepting an assignment.

Case 6: A replacement, and a request to backdate

Elena owns a 12-year-old whole life policy from Insurer A. A producer proposes a universal life policy from Insurer B, funded partly by surrendering the old policy. Elena wants the new policy dated 8 months back to keep her younger age’s premium.

1. This is a replacement because an existing policy will be surrendered. The producer submits the statement on existing coverage signed by Elena and the producer, then reads aloud the replacement notice, has both sign it, and leaves it with Elena with all sales material used (s. Ins 2.07 (4), Wis. Adm. Code). Suggesting that she answer “no” to keep Insurer A from being notified is a named violation of s. 628.34 (s. Ins 2.07 (9) (a)).
2. Disclosure. Elena receives the buyer’s guide when the application is taken (s. Ins 2.14 (4) (c)). If the producer used an illustration, Elena and the producer sign it and it goes to Insurer B with the application (s. Ins 2.17 (6) (d), (8) (a)).
3. The insurers. Insurer B notifies Insurer A within 5 business days and gives Elena notice of her right to return the new policy within 30 days of delivery for a full refund (s. Ins 2.07 (6) (a)). The two insurers are unrelated, so Insurer B need not credit time under the old one: a new 2-year contestable period, and any suicide exclusion period, can start over (s. Ins 2.07 (6) (b)).
4. Backdating. A policy may not be dated more than 6 months before the application if that lowers the premium, and the application date is the later of Part I or the medical exam (s. Ins 2.03 (1)). Eight months is not allowed.

Case 7: An HIV test in underwriting

Carlos applies for a $300,000 individual life policy, and the insurer requires a blood test that includes HIV. During the application he mentions he was tested at an anonymous clinic last year.

• The insurer may require a designated test for individual underwriting, at its own expense, after Carlos signs the prescribed consent form (s. 631.90 (3); s. Ins 3.53 (4) (a), (b)).
• The insurer may not request information about anonymous-site testing (s. Ins 3.53 (4) (g)). The producer does not record it.
• If the result is positive and affects the offer, the insurer tells Carlos in writing that he does not meet its usual criteria “because of a test result” and asks whether he wants the result sent to a health care provider. The result is otherwise confidential (s. Ins 3.53 (5), (6)).

Variations: if Carlos were instead applying for his employer’s group coverage underwritten individually, the insurer could not use or obtain HIV test information at all (s. Ins 3.53 (7)). If his policy is issued and he later dies of an HIV-related illness, the insurer may not deny or limit benefits for that reason (s. 631.93 (3)).

Case 8: The State Life Insurance Fund

Pat, a Wisconsin resident on a tight budget, asks her producer about buying $25,000 of coverage from the State Life Insurance Fund. The producer asks how much commission it pays.

The fund may issue life insurance to Wisconsin residents, but no more than $10,000 on any one risk (s. 607.02). Pat could buy up to $10,000 there and would need a private insurer for the rest. The fund “may not employ agents or solicitors and may not pay commissions” (s. 607.04), so the producer earns nothing on that part, and Pat applies to the fund directly. Its obligations are paid only from its own assets, not by the state (s. 604.06 (2)), and the Insurance Security Fund chapter does not apply to it (s. 607.03).

Lesson summary

• A death inside the first 2 years leaves the policy contestable, and the insurer must still meet s. 631.11.
• Misstated age or sex adjusts the benefit at any time, and disability and accident riders stay contestable for fraud.
• A beneficiary change delivered to the producer is notice to the insurer.
• Divorce revokes a former spouse’s revocable designation unless an exception applies, and a will cannot change a beneficiary.
• An assignee ranks ahead of a beneficiary unless the beneficiary was irrevocable first.
• A replacement requires the signed existing-coverage statement, the notice read aloud, and a 30-day right to return, and backdating that lowers the premium is limited to 6 months.
• HIV testing requires consent and confidentiality, applies only in individual underwriting, and cannot limit a life claim.
• The State Life Insurance Fund insures residents up to $10,000 per risk and pays no commissions.