23–3. Timing of Insurance Coverage. On October 10, Joleen Vora applied for a $50,000
life insurance policy with Magnum Life Insurance Co. She named her husband, Jay, as the
beneficiary Joleen paid the insurance company the first year’s premium on making the
application. Two days later, before she had a chance to take the physical examination
required by the insurance company and before the policy was issued, Joleen was killed in
an automobile accident. Jay submitted a claim to the insurance company for the $50,000.
Can Jay collect? Explain. (See Incontestability Clauses .)
I do not believe that Jay can collect on this life insurance policy because it was not in
effect when Jolene Vora died. According to our book, in the case of life insurance, if the
applicant pays the premium but dies before having the physical examination, the
applicant’s estate would have to show that the applicant would have passed the
examination had he or she not died. If Jay can prove that Joleen would have passed the
examination had she not died, he could stand a chance of collecting, but that’s the only
way.
23-8. A Question of Ethics—Gifts. Marcella Lashmett was engaged in farming in Illinois.
Her daughter Christine Montgomery was also a farmer. Christine often borrowed
Marcella’s farm equipment. More than once, Christine used the equipment as a trade-in on
the purchase of new equipment titled in Christine’s name alone. After each transaction,
Christine paid Marcella an agreed-to amount, and Marcella filed a gift tax return. Marcella
