October 16,1972 M29-I , Part 1

Change 4

CONTENTS

CHAPTER 28. CANCELLATION, FRAUD OR FORFEITURE

PARAGRAPH PAGE\
•28.01 General 28-l\
28.02 Decision of Fraud 28.1\
28.03 Fraudulent Enlistment 28-2\
28.04 Forfeiture under 38 U.S.C. 711 28.3

28.05 Death Inflicted as Lawful Punishment for\
Crime or Military or Naval Offense 28.3

28-j

October 16, 1972 M29-l, Part I\
Change 4

CHAPTER 28. CANCELLATION, FRAUD OR FORFEITURE

28.01 GENERAL

a\. A cancellation is the action taken to invalidate an insurance
contract and/or the TDIP (total disability income provision) or to
nullify a reinstatement or a contract change, such as conversion,
renewal, or change of plan.

b\. Authorizations for cancellation, fraud or forfeiture actions are
provided by law and VA regulations.

c\. The law is published in title 38 U.S.Code as follows:

\(l\) NSLI (National Service Life Insurance)-sections 710 and 711.

\(2\) USGLI (United States Government Life Insurance)-sections 754.

d\. The following VA regulations pertain to these actions:

\(1\) Fraud

\(a\) NSLI-paragraphs 3462 and 3463.

\(b\) USGLI-paragraphs 3045(A) and 3046.

\(2\) Fraudulent Enlistment

\(a\) NSLI-paragraph 3462

\(b\) USGLI-paragraph 3045(B)

\(3\) Forfeiture-NSLI only-paragraph 3461

\(4\) Death Inflicted as Lawful Punishment for Crime, or Military or
Naval Offense

\(a\) NSLI-paragraph 3461

\(b\) USGLI-paragraph 3045(A)

28.02 DECISION OF FRAUD

a\. If, after approval of an application for insurance, TDIP,
reinstatement, exchange, conversion of term insurance, or change of
plan, it is determined that fraud was involved in the procurement of the
contract, a fraud decision will be rendered by the Insurance Claims
section. The fraud decision will be the authority for canceling the
insurance and/or TDIP, or the authority for canceling other actions
taken and restoring the insurance to its status before such action was
taken.

b\. when a fraud decision is rendered, the disposition of moneys will be
governed by the following:

\(1\) Premiums paid before the date of the fraud decision for any period
within **2** years from the effective date established by the fraudulent
action, which are earned, *are not* subject to refund. Premiums paid
before the date of fraud decision for any period subsequent to 24 months
after the effective date established by the fraudulent action, which are
earned, are subject to refund.

28-1

M29-1, Part l October 16,1972

Change 4

\(2\) Premiums paid before the date of the fraud decision which are
unearned as of the date of the fraud decision are to be considered as
suspense items and are subject to refund.

\(3\) Premiums paid on or after the date of the fraud decision are
considered as suspense items and are subject to refund.

\(4\) Regardless of the date paid, overpayments and other items in
suspense, not subject t() posting. are subject to refund.

NOTE: Suspense items are not subject to setoff without the permission of
the insured.

c\. Refunds are made to payees in the following order of preference:

\(l\) To the insured, if living.

\(2\) To the beneficiary, if the insured is deceased.

\(3\) To the insured\'s estate, if no beneficiary survives.

**d.** The following items are not subject to refund:

\(l\) Reserve payments submitted in connection with antedated issues or
conversions.

\(2\) Difference in reserve on changes of permanent plans from lower to
higher reserve values.

\(3\) Premiums in arrears including interest on reinstatement.

NOTE: Premiums retained under the provisions of 38 U.S. C. 710, will
remain in the trust funds or appropriations to which they are deposited.

e\. There shall be deducted from any premiums subject to refund the
amount of any loan, dividend, total disability income, difference in
reserve on a change in plan from a higher reserve, death award, or other
payment which would not have been disbursed except for the fraudulent
act. It is to be noted that if the fraud was committed in connection
with an application for TDIP only, deduction of any disability income
benefits which have been disbursed erroneously may be made only from
premiums tendered for TDIP which are subject to refund. If the insured
is deceased and erroneous death insurance benefit payments have been
made, it will be necessary for the Finance and Data Processing Division
to offset the erroneous payments.

28.03 FRAUDULENT ENLISTMENT

a\. Subject to the provisions of 38 title U.S. Code and VA regulations,
insurance issued, reinstated, or converted is incontestable, except for
fraud, nonpayment of premiums, or on the grounds that the applicant was
not a member of the military or naval forces of the United States.
Discharge or release of an insured from military or naval service for
the reason of fraudulent enlistment does not invalidate insurance issued
on the basis of such service, unless the Administrator determines that
the insured was mentally or legally incapable of entering into a
contract of enlistment. where it has been determined that the insured
was mentally or legally incapable of entering into a contract of
enlistment, any insurance issued on the basis of such service will be
canceled as of the effective date of the insurance.

b\. Fraudulent enlistments may be indicated in court-martial orders,
copies of discharge papers, etc. When any material is received which
indicates a fraudulent enlistment, the facts will be fully developed.

28-2 l.

October i6, 1972 M29-1, Part I\
Change 4\
28.04 FORFEITURE UNDER 38 U.S.C. 711

a\. Any person guilty of mutiny, treason, spying, or desertion, or who,
because of conscientious objections, refuses to perform service in the
Armed Forces of the United States or refuses to wear the uniform of such
force, shall forfeit ill rights to NSLI. However. the contract values,
if any, of such insurance as of the date of such offense shall he paid
to (the insured, if living, or otherwise to the designated beneficiary
or beneficiaries.

b\. In any case in which the insured provided for the payment of
premiums on his insurance by authorizing in writing the deduction of
premiums from his service pay, such insurance shall be deemed not to
have been forfeited because of desertion so long as he remained in
active service before the date of enactment of the Insurance Act of
1946, notwithstanding the fact that deduction of premiums was
discontinued because:

\(l\) The insured was absent without leave, if restored to active duty;
or

\(2\) The insured was sentenced by court-martial, if he was restored to
active duty, required to engage in combat, or killed in combat.

c\. The service departments furnish the VA with copies of the general or
special court-martial orders announcing approved findings of
courts-martial involving mutiny, treasonable acts, spying, desertion, or
refusal to perform service in the Armed Forces of the United States or
refusal to wear the uniform of such forces because of conscientious
objections. In Navy and Marine Corps cases, a memorandum over the
signature of an official of the Navy is acceptable in lieu of a copy of
the court-martial orders, provided such memorandum contains sufficient
data to make a determination as to whether the offense is one involving
forfeiture of all rights to insurance. The following list sets forth
offenses in violation of the Uniform Code of Military Justice, which may
be cause for forfeiture:

**Uniform** Code **of** Military\
Offense **Justice Article No.**

Desertion 85\
Mutiny 94\
Treason or aiding the enemy 104\
Spying 106

d\. Where insurance is canceled because of forfeiture, the disposition
of premiums will be governed by the following:

\(l\) Premiums paid before the date of commission of the forfeiture
offense or before the date of execution, which are earned, are not
subject to refund.

\(2\) Premiums paid on or after the date of commission of the forfeiture
offense or date of execution are subject to refund.

\(3\) Regardless of the date paid, overpayments and pending items, not
subject to posting, are refundable.

28.05 DEATH INFLICTED AS LAWFUL PUNISHMENT FOR CRIME OR MILITARY OR
NAVAL OFFENSE

a\. Under provisions of title 38 U.S. Code and VA regulations, no
insurance (NSLI or USGLI) shall be payable **for** death inflicted as a
lawful punishment for crime or for military or naval offense, except
when inflicted by an enemy of the United States. However, the contract
values, if any, of such insurance on the date of such death shall be
paid to the designated beneficiary or beneficiaries, if living, or
otherwise to the beneficiary or beneficiaries within the permitted class
in accordance with the order specified in 38 U.S.C. 716(b) for NSLI or
to the estate of the insured for USGLI.

28-3

M29. l, Part I October 16, 1972

Change 4

b\. Where satisfactory evidence discloses that death was inflicted as a
lawful punishment for crime, or for military or naval offense, other
than a forfeiture as defined in 38 U.S.C. 711 for NSLI, the insurance
will be canceled as of the date of execution.

28A