Things to Know About the Contestability Period in Life Insurance Policy

source: lawyer

Getting a life insurance policy is a common trend for individuals as it offers dual benefits of life coverage alongside an investment option. However, while planning to opt for one, try to learn all about a contestability period in life insurance since it matters to you.

Contestability enables your insurance provider to review the application for intentional falsifications after a death claim. Usually, the contestability period lasts for two years or rarely for three years. Continue reading to get a better idea about this contractual provision.

The contestability period defines an interval of two years after which a life insurance policy starts its coverage and the insurer can query for the beneficiary's claim. The main objective behind the existence of this period in an insurance policy is to prevent fraudulent activities.

Suppose an insured person dies within a contestability period. In that case, an insurance provider can investigate whether that individual had provided correct information when applying for a life insurance policy. If any error or inappropriate data is revealed during an enquiry, there is a possibility that the insurance company might deny compensating the death benefit to a beneficiary.

1. Avoid Providing False Information

While availing a life insurance policy, be honest about everything starting from your date of birth, health, age, medical history, health condition, lifestyle, hobbies and pre-existing disease (if any). Remember, if you lie or furnish any false information in a life insurance application, you will jeopardise your nominee's pay-out.

However, if you have provided genuine information and valid documents, you do not have to stress about anything more while filing your application form.

2. Death Benefit is Received Only if Everything is Found Accurate

3. Committing a Fraud Can Be Troublesome Even Beyond the Contestability Period

Always try to furnish authentic papers in your insurance applications and avoid telling lies. For instance, if you have given any false information in your application and remain alive beyond a contestability period, an insurance policy automatically goes into effect.

Even under such circumstances, an insurer has the legal right to sue you if they find false information or scams during an investigation. Subsequently, they may either cancel or deny your policy.

4. Contestability Period and Suicide Clause Are Different

Almost all life insurance plans come with a suicide clause. Often individuals come across confusion by considering a contestability period and suicide clause as the same. But in reality, both of them have different issues.

Regarding a suicide clause, an insurance company will not pay any death benefit. It will pay back the premiums if an insured individual commits suicide before the initial two years of a policy. However, if an insured person does the same thing but after two years, the insurance provider will pay the death benefit.

5. Beneficiaries May Have to Wait Longer If You Expire During a Contestability Period

An insurance company might not investigate the claim if the insured individual dies in an accident. However, if the insured person dies due to health issues, such as a non-smoker dying from lung cancer, the insurer may investigate a claim.

So, if there is an investigation, there is a likelihood that the receipt of the death benefit might linger. However, if no fraud is found, the insurance company will be liable to pay a beneficiary the interest on the death benefit for the number of delayed days.

Some of the notable importance of a contestability period in a life insurance policy are as follows:

• The tenacity of a contestability period clause in a life insurance policy is to protect the insurance issuing authorities against fraudulent activities.
• It enables an insurer to assess and inspect an applicant's medical history and determine the credibility of the details the policyholder has provided while buying an insurance policy.
• The contestability period helps safeguard the insurance companies from discrepancies but also assigns them the right to question the authenticity of the death claim.
• It gives the right to an insurance company to reopen the underwriting during a two-year period in case an applicant has hidden or misrepresented their details.

Suppose your nominee applies for a life insurance claim before a contestability period. In that case, the insurance company may conduct an open investigation to verify whether the documentation and formalities you have undergone in your application were authentic.

The insurer will check the medical records and look at the copy of your death certificate and other relevant information. After investigation, if the insurer finds everything is in order, they will proceed with their decision.

In general, the investigation procedure is completed within 30 days. Once the decision has been finalised, the insurance company will notify the nominee with either approval or denial.

When it comes to the tenure of a contestability period for a life insurance policy, it starts once an individual makes the first payment, and it continues for a year or two or even three years on very rare occasions.

So, if you are approved for life insurance coverage on July 15 and paid your first premium on August 1, the life insurance contestability period will commence from August 1. However, all policyholders need to be aware that their life insurance plan can lapse during an ongoing contestability period in case they fail to pay the premium.

After knowing comprehensively about a contestability period in life insurance, ensure that you produce relevant documents and give only the necessary information about your present and past health and medical status when availing an insurance policy. So, if you provide your details correctly and the policy expires an hour after you buy it, your family will still receive the death benefit.