Most life insurance policies have an incontestability clause. This clause stops the insurance company from canceling the coverage. These clauses are only applicable if the cancellation is because of something the insured person got wrong in the application process.

 However, this to be only after a certain period, usually two to three years. These clauses are there to keep insurance companies from not paying when there’s a claim. But they can’t help if someone is purposefully dishonest.

Therefore, the incontestability clause found in insurance policies stops the insurer from changing or rejecting the policy.  If the insured person gave wrong or untrue information during the application process, this clause safeguards them. 

This clause ensures that the insured person can still receive the benefits of the policy. What makes it a game changer is that it stays valid up to two or three years until after the contract.

What Is The Incontestability Clause In Life Insurance?

So, what is an incontestability clause in a life insurance policy? The incontestability clause in an insurance policy serves to shield policyholders from unfair denial of coverage due to incorrect information. This is especially applicable in life or disability insurance. 

Once the contestability period ends, usually after a couple of years, the policy cannot become void. However, this only extends to cases where the insurers want to declare it void due to errors or misinformation.

During this contestability period, the insurance company carefully reviews the applicant’s details. Thus, they go through it all, including medical information, to rectify any mistakes. However, if the insurer suspects fraud, the company can challenge the claims in court. 

For example, fraud can be a situation like someone else taking a medical test on behalf of the applicant.

If Deception Is Intentional

If the deception is intentional and the insurer proves it, the insurer cannot simply cancel the policy. However, they must take legal action to challenge the claims. This legal process determines the fate of the policy.

Thus, the incontestability clause benefits the insured person by avoiding extra costs and time in potential legal battles. It specifically states that the policy cannot become void due to misinformation after a couple of years from its start date.

However, the clause also highlights that fraudulent attempts from insured persons will lead to termination of coverage. Despite this, it remains a crucial and reliable safeguard within an insurance policy. It operates for the policyholder’s benefit. 

What Are The Exceptions To The Incontestability Clause?

So, commonly there are a few exceptions to these incontestability clauses in insurance policies. They include.

In many states, if the insured individual provides incorrect information about their age or gender during the life insurance application, the policy usually remains valid.

However, the insurance company can adjust the death benefits to match the accurate age of the policyholder.

Certain states permit insurance companies to stipulate that the contestability period, typically lasting one or two years, should conclude while the insured person is alive.

However, if the policyholder was critically ill at the time of application and passed away before this period ended, the insurer might deny paying the benefits.

Some states grant insurance companies the authority to cancel a policy if they can prove deliberate fraud on the part of the policyholder. 

How Does An Incontestability Clause Fall Under Consumer Protection Laws?

An incontestability clause serves as a safeguard for consumers applying for life insurance. Applying for insurance involves detailed medical history. A simple mistake in the application can become a reason for the insurer to deny benefits later on.

Originally only reputable insurance companies in the late 1800s offered these clauses were aimed at restoring trust among consumers. They promised to honor full benefits after two years of the policy being in force. This was irrespective of any errors in the initial application.

This initiative was to improve the industry’s reputation. However, this lead to the passage of laws about the inclusion of incontestability clauses. Soon, they were a necessity by state governments in the early 20th century.

Once we purchase a a life insurance policy, the clock starts ticking on the contestability period. After two years, if there are no errors in the original application, the benefits are a guarantee.

Even during this period, it’s challenging for the insurance company to cancel a policy. In most states, they must file a lawsuit in court to annul the contract. Therefore, simply notifying the policyholder isn’t sufficient.

Who Does the incontestability clause help?

Insurance companies made the clause long ago to protect people who buy insurance. It stops insurance companies from canceling coverage if someone makes a mistake in their information, even if they find out about it two or three years later. But if someone lies on purpose, the insurance company can cancel the contract.

The incontestability clause considers both the policyholders’ and the insurer’s interests. It gives the insurance company time to check the application for any mistakes or misunderstandings. But once that time is over, the insurer can’t change or stop the benefits and coverage for the policyholder.

To Conclude

The clause makes insurance companies check all the important information when someone applies for insurance. After two or three years of having the policy, the insurance company can’t cancel it because of mistakes in the information. But there are a few times when this rule doesn’t apply.

In life insurance, the incontestability clause helps the person with the policy and their family. It stops the insurance company from canceling the coverage if the person with the policy passes away or if they had health problems the insurance company didn’t know about.