How to Insure Your Income: How Much You Make
What you make is fairly simple to calculate. It's the amount of earned income you expect to have during a specific period of time. In most cases, insurance companies calculate this number by asking what you make in salary and other earned income.
A good insurance company will ask for some kind of proof of income -- like an IRS W-2 form or other tax document. However, some companies don't require this sort of due diligence research. When an insurance company doesn't do its homework, trouble often follows.
The 1996 federal appeals court decision Massachusetts Mutual Life Insurance v. Massoud Heidary dealt with a policyholder trying to wring a lot out of a disability policy. In April 1990, Heidary applied for disability insurance from MassMutual. The company issued a policy to Heidary later that month.
Three months later, Heidary was involved in an automobile accident and subsequently filed a claim for benefits.
MassMutual said that Heidary had made misrepresentations in his application. Contrary to his claim that he was a company president with managerial responsibilities, he spent at least half his time working as an electrician. Contrary to his claim to have an annual income of $65,000, he had earned just $24,000 in 1990.
MassMutual officials met with Heidary in October 1991. At that time, Heidary accepted a check representing reimbursement for all of the premiums he had paid, plus interest, and signed a release form discharging the company from all liability under the disability policy.
Two years later, Heidary contacted MassMutual and sought benefits under the same disability policy. MassMutual refused to pay. Instead, in October 1994, MassMutual sued Heidary and asked for a court declaration that:
- Heidary had made material misrepresentations to the company when he applied for disability insurance;
- he had released the company from all obligations under the disability policy in October 1991; and
- he was accordingly not entitled to benefits under the policy.
Heidary denied making material misrepresentations in his application. The trial court observed that:
absent fraud, duress or mutual mistake, ... one having the capacity to understand a written document who reads and signs it, or, without reading it or having it read to him, signs it, is bound by his signature.
Finding no evidence that could lead a rational juror to conclude that fraud, duress or a mutual mistake had occurred, the court ruled that Heidary was bound by the terms of the release form he had signed. Heidary appealed the decision, arguing that the trial court erred when it ruled for MassMutual.
He based his appeal on four assertions:
1) he did not read or speak English well, because his native language was Farsi;
2) using a single insurance application form, he believed he had applied for both life insurance and disability insurance;
3) a MassMutual agent who spoke Farsi was present at the October 1991 meeting and told him, in Farsi, that the check being offered represented the first installment of disability benefits, and the release form concerned only a life insurance contract;
4) given the release form's use of the phrase "on the life of Massoud Heidary" and the absence of any use of the word "disability" in the release, he believed that the release was effective with respect only to a life insurance policy.
The Farsi-speaking MassMutual agent denied making the statements attributed to him by Heidary.
The appeals court concluded that no reasonable person could find that Heidary thought he was buying a life insurance policy:
... Appearing at the top of the first page of the insurance application submitted by Heidary were several boxes, by which the applicant was to indicate, with a check mark, the type of insurance he wished to obtain. ... On Heidary's application, only one box was checked -- the box next to the phrase "New Disability Insurance."
... The one-and-one-half-page section of the application titled "Life Insurance Data," beginning on the first page of the application, was left blank. The one-and-one-halfpage section titled "Disability Insurance Data" was fully completed.
... the insurance policy issued in response to Heidary's application bears the title, on the first page of the policy, "Disability Income Policy: Benefits Payable For Loss Of Earned Income."
Heidary's best chance at salvaging some part of his claims was to show that the release he signed during the October 1991 meeting was ambiguous and confusing. But even this argument didn't work with the appeals court:
... The release form Heidary signed clearly referred to the disability insurance policy by using the policy number. The form stated, in pertinent part:
In consideration of the payment of $4,185.43, representing a refund of premium plus interest under Policy No. 9 391 944 issued by Massachusetts Mutual Life Insurance Company of Springfield, Massachusetts, on the life of Massoud Heidary, the undersigned hereby delivers said policy to said company for cancellation and hereby releases and forever discharges said company of and from all manner of claims ... which she/he ever had ... by reason of the issuance of said policy of insurance.
The appeals court affirmed the lower court's decision in favor of MassMutual.
