Did Sarah’s firm act appropriately?

Following the death of her sister Sarah last year, Yesha, the liquidator of Sarah’s estate, had been in contact with Sarah’s insurance agent Monique on several occasions to claim the death benefit on Sarah’s life insurance policy.

Yesterday, Yesha noticed that Sarah also had a disability insurance policy with a return of premium option which stated that a portion of the premiums can be reimbursed upon her death. Yesha contacted Monique again and asked her for more details about the disability policy and return of premium option but Monique replied that she could not help her as her firm had destroyed Sarah’s files shortly after paying out the death benefit.

Did Sarah’s firm act appropriately?
A . Yes, because the death benefit was paid.
B . Yes, because the life insurance company will still have a copy of the contract.
C . No, because the file has to be kept for 5 years.
D . No, because the file has to be kept for 7 years.

View Answer

Answer: C

Explanation:

In the context of insurance, records related to client policies, including claims and relevant documentation, must generally be retained for a minimum of five years. This requirement ensures that firms maintain adequate records for review or potential claims and can support clients or their representatives in matters related to policy details.

Destroying Sarah’s file shortly after paying out the death benefit would violate this five-year record retention requirement, which is part of standard industry practice for insurance providers. The requirement is intended to safeguard client information and provide continuity of service in case further details are needed post-claim.