Life insurance policies contain a contestability period.1 This is a period when the insurer can investigate the beneficiary’s claim, review your application for incorrect information, or deny death claims. The contestability period is usually a maximum of two years from the policy becoming active.2
The contestability period is important to insurance companies because it helps protects the company against fraud, which helps control the cost of life insurance for consumers. There are several reasons to include a contestability clause for life insurance including:3
- Insurance companies deter fraud by vetting applications thoroughly.
- Insurance companies may pay claims on coverage for which an individual should not have qualified. Using a contestability period helps control the cost of insurance.
- There may be consequences if an applicant seeking life insurance coverage fills out the application inaccurately. The insurance company may decide to cancel the policy and the individual may not be eligible for future coverage from that insurance company. If convicted of insurance fraud, there may be fines and jail time.
Failing to disclose certain medical conditions or medical history may result in policy cancellation
The best way to avoid policy cancellation due to misrepresentation is to give accurate and truthful information during the application process.
What happens if a policyholder commits suicide?
Life insurance policies generally include a suicide clause that states the insurance company will not pay the death benefit if the insured dies from suicide within the first two years of the policy. If the suicide occurs outside the suicide clause period, it is treated like any other cause of death.
What happens if a policyholder dies during the contestability period?
If a policyholder dies during the contestability period it doesn’t mean a beneficiary will not receive a death benefit. The life insurance company will investigate the claim to determine whether there is any evidence of misrepresentation on the application. If the insurance company does not find evidence of misrepresentation, the company will pay the death benefit to the beneficiary.
Examples of misrepresentation in a life insurance application may include withholding or misstating information regarding: 4
- Drug and alcohol abuse
- Tobacco use
- Material health history - minor and major conditions
- Chronic or terminal illness
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What is the difference between contestability and incontestability?
Contestability refers to the period when the insurance company can contest or investigate any claim made, or the issuance of the policy due to misrepresentation on the application for life insurance coverage. For most insurance companies the contestability period is the two-year period following the date the policy is issued.1 The duration of the contestability period in an insurance policy is determined by a state’s insurance department, generally ranging from two to three years after policy issuance.
Once the policy has been in force for a certain amount of time, it cannot be challenged. This means the policy is incontestable and the insurance company cannot investigate the claim for misrepresentation on the application.
How to navigate the contestable period
The best approach is to give accurate and truthful information during the application process.4
Sources:
- Nerd Wallet, June 13, 2024, The Life Insurance Contestability Period Explained
- NAIC, Market Conduct Annual Statement, 2023
- Market Watch Guides, https://www.marketwatch.com/guides/insurance-services/life-insurance-contestability-period, Accessed 2024.
- Life Insurance Law, June 28, 2023, Life insurance claims and misrepresentations on applications