All About the Life Insurance Contestability Period

Jan 27, 2024 By Triston Martin

Your life insurance company can investigate your application for the first two years (known as the "contestability period") and refuse to pay a claim if they discover any signs of fraud.

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Those who plan ahead for their demise by investing in life insurance provide a measure of financial security for their loved ones in the event of their untimely death. If, however, you were to die within the contestability period of your policy, the premiums would not be refunded. Your insurer has the authority to investigate any discrepancies they find in your application paperwork, but your beneficiary should still receive payment.

Only if the insurer discovers fraud or willful misrepresentation in your application would they be able to reject it. The insurance company may refuse to pay out the full death benefit, for instance, if they discover that the policyholder hid a diagnosis of depression.

Insights that are crucial to keeping in mind

In case of a death claim, your provider has the right to investigate your application for fraudulent activity under the contestability clause. After two years, you can no longer challenge the outcome. Restarting contestability occurs when new insurance is purchased or when coverage is resumed following a lapse.

An insurance company has two years from the time your life insurance policy becomes effective to investigate any claims of fraud or misrepresentation made by you during the application process (this is known as the "contestability period"). As a result of contestability, life insurance companies are safeguarded against fraudulent claims. The insurance company needs to verify that you didn't hide or exaggerate any facts on your application that could affect the cost of your premiums, such as your health or lifestyle.

You Fib On Your Life Insurance Application

Forgetting to list a prescription on your application is an example of a minor error; this is something that can be easily fixed. Fortunately, blunders may be adjusted for later. Contestability exists to punish applicants who conceal or misrepresent material facts in order to qualify for the reduced premiums offered to applicants who pose less of a risk to the insurer.

To be dishonest on purpose will be discovered by insurance companies. Most insurance companies require a physical examination as part of the underwriting process. Medical Information Bureau (MIB) reports they combine information like prior surgeries and medical diagnoses or treatments using other insurance applications you've completed, and underwriters compare your assertions against these reports. Lying to an insurer will result in a denial of coverage in the future and will be noted on your MIB report.

Implications of Contestability on the Death Benefit

Even if your life insurance company is looking into your death, that won't necessarily mean they won't pay out to your beneficiary. The insurer may still pay the death benefit or give a lesser advantage reflecting the higher premiums you should have paid if the information is inaccurate. This will occur if there is a slight discrepancy, such as a few pounds, but more significant variances will likely result in a denial of the claim.

How a policy lapse affects contestability When you stop paying your life insurance premiums, your policy will lapse. You'll need to apply for a new approach to protect your family again.

Because of your increased age, your rates will increase, and you'll have to go through underwriting and the contestability period all over again. If you lie on your new application and pass away within the first two years, your beneficiaries will not receive a death benefit.

In the market for life insurance policies

There is a "suicide clause" in your life insurance policy that runs concurrently with the contestability period (the first two or three years of coverage) but is otherwise distinct. If your life insurance policy is contestable, the insurer might look into your death's circumstances. The insurance company could deny your beneficiary's claim under the suicide clause if your cause of death were suicide.

It is the goal of suicide provisions to prevent people from purchasing life insurance with the explicit intent of taking their own lives to leave a financial legacy for their loved ones. If you die by suicide after two to three years, your insurer will pay the death benefit. When you need to purchase a new policy, the suicide clause time will begin again, much like the contestability period.

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