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Life Insurance Contestability Period

Life Insurance Contestability

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

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Life insurance is a complicated topic. There are tons of factors and terms that you’ll need to understand in order to 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.

7 Things You Should Know About Life Insurance Contestability Periods

1. Insurers Still Must Pay During the 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. Giving False Information Could Put Your Family 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 on how big the claim was and how obvious the misrepresentation was.

5. 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 if a person, who never smokes, dies from lung cancer.

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 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 can request medical records, 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 are 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.

How To Get 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 get 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 family’s needs. We can navigate 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 1-800-712-8519.

Doug Mitchell, CLU

Doug Mitchell, CLU

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent close to 30 years in the life insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health. Some other notable items about Doug: Top of the Table Million Dollar Round Table member (MDRT). (MDRT is a global, independent association of the world’s leading life insurance advisors) | Premier Partner with Lincoln Financial and Cabinet Member | Served two years as President of the Auburn/Opelika Association of Financial Advisors | Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award | New York Life, Executive Council Member | Currently serves as President of Ogletree Financial, a life insurance General Agency. | Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

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