Seven Things You Should Know About Life Insurance Contestability Period

Last updated: March 6th, 2018

Life Insurance Contestability

Life insurance is a complicated topic. There are tons of factors and terms that you’ll need to understand that you have the best protection for your loved ones. While it can be a confusing purchase, we are here to ensure that you have the information and resources that you need to make the best life insurance purchase for your family.

The contestability period on life insurance policies serves as a way to protect life insurers from fraudulent and mistaken information provided by the policyholder regarding the named insured during the underwriting process. Depending on the state, contestability clauses last for the first year or two during which the policy is in force.

What You Should Know About Life Insurance Contestability Period

1. Insurers still must pay during contestability period

Although insurers have the right to review and investigate life insurance claims filed during the contestability period, that does not mean they won’t pay the death benefit. Instead, it means they have the right to look into the matter and ensure the underwriting process was done properly and based on factual information. If, for example, the named insured had been diagnosed with a terminal illness but claimed to be in good health when buying a term life insurance plan, the insurer would have the right to deny the claim based on false information.

2. Suicide is not part of the contestability clause

While there is a suicide clause in life insurance policies, it is not the same as the contestability clause. The suicide clause says that the life insurance provider has the right to decline the claim and has to refund the premium if suicide is committed within the first two years. After two years, the insurer will pay the death benefit even if the cause of death is suicide.

3. Knowingly giving false information could put families at risk

Providing false information for whatever reason when seeking life insurance coverage can be grounds for denying a claim, in which case the premiums would be returned minus insurer costs.

4. Giving wrong information could reduce the benefit amount

Sometimes, people give the wrong information without knowing it. It could be they simply misread the application or perhaps had a pre-existing condition of which they were not aware at the time. If the investigation finds that the insured misinterpreted facts on his application, the insurance company can deny the claim or determine the right amount of premium he should have been paying based on the new evidence and lowers the death benefit. The company’s decision will depend how big the claim was and how obvious the misrepresentation was.

Life Insurance Fraud5. Fraud can be punished after the contestability period

If an insurer discovers fraud has occurred on the part of the policyholder or named insured after the contestability period has expired, the insurer still has the right to deny coverage and return premiums paid based upon the fraud.

6. The contestability period can be extended

Sometimes, life insurance plans are rolled over into new accounts to increase the potential death benefit and return on investment. In such cases, the contestability clause can be reinstated for a new period.

7. Dying during the contestability period could delay payments

When the named insured dies during the contestability period, the insurer can delay paying the death benefit while investigating the matter. However, if the insurance company has proven that the insured didn’t commit suicide, the beneficiary is owed interest on the death benefit once the payment is made. Insurance companies don’t actually investigate every claim during the contestability period. They will not look into a claim when the insured person dies in a car accident, for example. But, they will likely investigate a claim if the insured person dies of a disease or any health-related cause, such as a person, who never smokes, dies from lung cancer.

While the contestability clause applies to every life insurance plan, so long as the named insured provided information in good faith and did not intentionally submit false information, beneficiaries do not need to worry about whether or not they will receive a death benefit if the named insured dies.

Common “Material Misrepresentations”

If the insured passes away in the first two years after purchasing your life insurance policy, the company can investigate to see if there were any “misrepresentations” on the application. Basically, they are looking for any lies or information that was not disclosed on the application. During this investigation, the company request any medical records, request an autopsy report, or a statement from the insurance agent. Depending on the situation, they may also question family members.

Some of the most common misrepresentations on an insurance policy are not disclosing health history, hiding tobacco usage, drug usage, or dangerous hobbies, like SCUBA diving. If you misrepresented any of these categories, then the insurance company may have legitimate grounds for not paying your family the face value of the plan.

Finding the Perfect Policy for You

Every insurance plan is going to have a contestability period, but not every plan is the same. There are several other factors you will need to compare to find the right plan. Some of the factors that you’ll need to decide on is what type of policy you’re going to buy, how much coverage you need, any riders you’re going to add, and which company has the lowest rates.

Don’t let the contestability period scare you. As long as you’re honest with the insurance company, and you don’t lie or hide any information, your family will get the coverage they deserve.

As independent insurance agents we have the ability to offer many different plans from a diverse list of companies.  This allows you to find an option that has a friendly contestability period that benefits your needs.

Getting Cheaper Life Insurance

Life insurance can be expensive, but chances are you will qualify for a plan that costs less than you originally thought.  Getting the coverage you need can be cheap and easy by following the steps listed below.

There are a few simple ways you can trim down your premiums. Don’t want to pay double the quoted price?  Then stop using tobacco.  Smoking and chewing tobacco will raise your rate twice as much as non-tobacco users will pay.

Living a healthy lifestyle will also keep your life insurance premiums low.  Most companies list a medical exam as part of the underwriting. During the medical exam, the nurse will take your basic vitals, like your heart rates, your blood pressure, your weight, a blood sample and a urine sample. All of these are going to determine your monthly premium. Getting in better shape will help you better results from the insurance company.

The quickest opportunity to getting the lowest rate is to contact us and have an agent present you with a quote from one of our many carriers.  We have the ability to determine which company and plan will best suit you and your families needs by navigating the different underwriting questions and premium systems they use.

The future is unpredictable, so do not put off buying the life insurance that will cover your family in the event of a tragic situation that can leave your loved ones with debt that will last a lifetime.

Call us today for a quote at 1-888-552-6159.

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Doug Mitchell

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Comments (2)

  1. Rich says:

    Hi Liran:
    Does the 2 year contestability period start with the date of issue or with the date of death ? My dad bought a policy in January 2012 and died in January 2013. The insurance company says they have until January 2015 to complete their investigation. Shouldn’t it be January of 2014, which is 2 years after the issue date ?

    1. Liran says:

      The 2 year contestability period is the first 2 years of the policy. You dad died within the conestability period, so they do have a right to investigate – as far as how long they have to investigate, that I’m not sure, but I would ask them why it would take so long, and you may want to consult an attorney.

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