The Life Insurance Contestability Period Explained
Buying a life insurance policy usually means that your loved ones receive financial support after you pass away. However, if you die shortly after your plan becomes active, your insurance company is likely to investigate the circumstances of your death.
This is because of the contestability period, which encompasses the first two years after your policy is officially undertaken. But, what exactly is the significance of this period? And how does it affect you? Read on to find out.
What Is The Life Insurance Contestability Period?
The contestability period encompasses the first two years after your life insurance policy goes into effect. During this two-year contestability period, life insurance companies can review the information submitted on your application for any material misrepresentation or deliberate falsehoods.
Life insurers usually do this to protect themselves from insurance fraud – some people might lie about their health or lifestyle-related information to get better rates or more comprehensive coverage.
How It Works
Life insurance companies may have their own unique set of rules regarding the contestability period, but there are a few common considerations.
For example, if you die during the contestability period and your life insurance company finds falsified information on your application, a few things can happen. Specifically, they may:
Cancel your life insurance plan
Subtract money from your death benefit based on the premiums you were supposed to bepaying (if your material misrepresentation resulted in lower premiums)
Refuse to pay the death benefit out altogether
Do note that the misrepresentations on your life insurance application don’t necessarily have to be related to your cause of death. That means even if you die from a car accident but omit something from your medical history, your insurer can still cancel your policy and deny the claim.
This two-year period also helps your life insurance company identify half-truths that may directly affect your risk profile. For example, users that report casual tobacco use may qualify for non-smoker rates. But if it’s discovered that they actually smoke close to one pack a day, then their insurer may refuse to pay the claim.
How It Affects Your Beneficiaries
If you die within the first two years of your life insurance contract, your insurer will investigate your cause of death and its circumstances. This usually only affects your beneficiaries’ payout if you purposely left a vital piece of information out – there is some leeway for minor errors.
For example, insurance companies may still pay the death benefit if the error is a reasonable difference in your weight at the time of death. But if there are significant discrepancies, your insurer may deduct from the total death benefit amount or deny your beneficiaries’ claim.
Given this, the best thing policyholders can do is keep in touch with their insurance providers and ensure that all the information provided is accurate and up-to-date regularly.
Forgetting Details vs Deliberate Mistruths
It’s important to distinguish between a genuine mistake and a deliberate omission of the truth regarding life insurance policies. For example, if you’re a skier and forgot to report exactly how often you hit the slopes, you can still correct that information even after the contestability phase.
Other examples of acceptable mistakes are if applicants guessed their weight or simply didn’t know their blood type when filling out the form. This also applies to estimations of how much you drive in a year and dates of speeding citations (if any).
On the other hand, if you were deliberately dishonest, your insurer will likely find out through background checks, routine medical exams, blood work, and urine tests. A typical life insurance company usually cross-checks every health claim with the Medical Information Bureau or MIB. This means they have access to your surgery records, past medical diagnoses, and other health or car insurance applications you may have initiated within the last few years.
Other Things You Need To Know
The best thing any policyholder can do is familiarize themselves with their policy's ins and outs, and that includes the contestability period. Here’s what else you need to know before buying a life insurance plan.
Some Policies Can’t Be Contested After Two Years
In some cases, your insurance company may still discover fraud and withhold/significantly reduce the benefit on your policy, even after two years. However, some policies have an incontestability clause that may prevent your provider from reviewing claims after the contestability period has ended.
This clause exists to protect your beneficiaries from having a claim denied due to error or misrepresentation. Note that not every policy has this protection – it’s best to consult with your life insurance agent on this before completing your application and settling on quotes.
The Suicide Clause
If the insured commits suicide within two years of taking out the policy, the insurance company will usually cancel the plan and deny any claim. This rule is called the suicide clause.
This clause exists to dissuade people from buying a policy with the intention of causing self-harm and leaving money behind to their beneficiaries. However, if the insured person dies from suicide after the initial two years concludes, their beneficiaries will still receive their claim.
If you are thinking about harming yourself or attempting suicide, talk to someone who can help right away.
Call the toll-free, 24-hour hotline of the National Suicide Prevention Lifeline at 1-800-273-TALK (1-800-273-8255) to be connected to a trained counselor at a suicide crisis center nearest you.
The Contestability Period Can Be Reset
Given that you’re past contestability and all the details you provided on your policy application are accurate and up-to-date, your loved ones will receive their payout when you pass away. However, there is still the risk of resetting the contestability period.
For example, if you fail to make your premium payments and your policy lapses, your insurance company may give you a 30-day grace period to make payments. However, if your premiums remain unpaid even after the grace period is over, you’ll have to re-apply for a life insurance policy. That means potentially higher premiums and going through the contestability period once more. It’s considered best practice to pay on time to avoid possible complications with your coverage or claims.
The best thing you can do as a potential policy owner is to make sure that your details are complete, accurate, and up-to-date – whether you’re applying for a new policy or maintaining an existing one. If not, insurers may flag any inaccuracies as potentially fraudulent and deny any claims on your insurance.
Nobody wants their coverage taken away due to inconsistencies and human error. Contact us at Wesley Insurance, LLC to find out how we can help you navigate your life plan with ease!