Incontestability clauses with life insurance policies are something that many people don’t know about. If you have a life insurance policy, it’s important to know what these clauses are and how they work. In this blog post, we will discuss incontestability clauses and what they mean for your policy. We will also provide some tips on how to make sure your policy is as protected as possible.

Incontestability Clauses Defined

Clauses are built into all life insurance policies. Each clause protects either the policyholder, beneficiary, or the life insurance company. Life insurance clauses are often referred to as exclusions. That means every policy includes different clauses, so it is essential to understand your policy and what it covers.

With the incontestability clause, the insurance company has a set period to dispute any of the statements. This refers to anything which a policyholder made on their application. If they discover that a person lied or misrepresented themselves on an application, the insurance company can terminate the policy. Alternatively, it can adjust the premiums due.

How Does it Work?

A life insurance company typically has two years to dispute any of the life insurance application statements. In some cases, the period is three years and in others one year. As soon as a life insurance policy takes effect, the incontestability clause period begins.

During this period, an insurance company must prove that false or incomplete information was given by the policyholder. At the time of applying if it wants to contest the policy due to a misrepresentation by the policyholder. After this specific period ends, the insurance company can no longer challenge the applicant’s statements. At this point they are legally required to pay out if the insured dies.

If a life insurance policy lapses due to missed premium payments. The contestability period may start over when the coverage starts up again. Essentially, if someone stops making payments and the policy lapses. Then they resume making payments, the one- or two- or three-year incontestability period starts all over.

How Does This Protect a Consumer?

It’s sometimes easy to make a mistake on a life insurance application. For example, let’s say you gained or lost some weight and didn’t update the data. Another example is if you forgot to include a piece of your medical history. To help mitigate the risk of applicants providing incomplete or false information on their applications, life insurance companies often require a medical history and a medical exam before approving a policy. These exams help ensure that all of the applicants’ information is correct and protect both parties from canceling or invalidating a policy.

Once a policy is purchased, the incontestability clause period begins. The life insurance company may validate any of the information provided in an insured’s application. If they find no errors after two years, a person’s life insurance benefits are guaranteed. Therefore, a person’s investment in life insurance is protected.

Exceptions

There are a few exceptions to the incontestability clause that it’s essential to be aware of when applying for life insurance. The first exception is if a person misstates age or sex the insurer may adjust the death benefits to accord with the policyholder’s actual age or sex. lies when applying for life insurance. This exception applies in most states.

The second exception, allowed in some states, permits an insurance company to void a life insurance policy if there was deliberate fraud.

Thirdly, if a policyholder dies during the incontestability period, the insurer will investigate if all the application information is correct. Therefore, if a policyholder dies a few months after completing their first payment, the insurance company is still legally allowed to search for any errors.

If the insurance company finds errors, it has two options. The first option applies to small mistakes. The insurance company can calculate the additional premium that the policyholder would have owed and deduct it from the death benefit payout. If the errors are large enough or fraudulent, the insurer could deny the claim.

What to Take Away?

For the first two years or so of a person’s life insurance coverage, the insurance company has the right to investigate the person’s application to ensure that there are no misrepresentations. If there is a misrepresentation, the life insurance company can either adjust the death benefit to cover the payments that should have been made or deny any claims and cancel the policy. Errors are easy to make on life insurance applications. Therefore, incontestability clauses protect your beneficiaries from not receiving a death claim if an insurance company denies the death claim due to innocent mistakes.

In Closing

  • Understanding the ins and outs of a life insurance policy can help ensure you properly protect your loved ones. So, if you’re unsure of which policy makes the most sense for your needs, a financial advisor can offer invaluable advice. My United Health Insurance has tools that can help with finding an advisor easily, as it pairs you, within minutes, with as many as three local advisors depending on your needs. If you’re ready, get started now.
  • Looking for a quick way to see how much insurance you need to buy, give us a call at 1-800-339-4112