In Colorado, insurance companies must act in good faith when handling claims. Under C.R.S. § 10-3-1115 and § 10-3-1116, insurers may be held liable for unreasonably delayed or denied claims, including damages and attorney’s fees. Additionally, C.R.S. § 10-7-109 governs life insurance contestability and policy requirements.
What Is Life Insurance? How Do Life Insurance Policies Work?
Life insurance is a contractual agreement designed to provide financial security to your loved ones in the event of your death. In exchange for regular premium payments, the insurance company agrees to pay a lump-sum death benefit to the policy’s named beneficiaries. This benefit can be used to cover:
- Funeral expenses
- Mortgage payments
- Debts
- Lost income
- Long-term family support
There are two main types of policies commonly purchased by Colorado residents:
- Term life insurance, which provides coverage for a specific period (such as 10, 20, or 30 years). The policy pays the benefit if the insured passes away during that term. Once the term expires, coverage ends unless renewed or converted.
- Permanent life insurance, such as whole life or universal life, which offers lifetime coverage and may build cash value over time. These policies are more complex and often used for estate planning or tax-advantaged savings.
When a policyholder passes away, the beneficiary must submit a claim to the insurer along with proof of death. Under C.R.S. § 10-3-1104, insurers are required to conduct a prompt, fair, and thorough investigation—and to pay valid claims without unreasonable delay.
Colorado also enforces a two-year contestability period, during which insurers can review the application for material misstatements. After that period, the policy generally becomes incontestable unless the insurer can prove intentional fraud.
