More on Life Insurance
More on Life Insurance
In the first two years of your policy — the contestability period — your life insurer can review claims and refuse to pay out if they find evidence of fraud.
The contestability period is the first one to two years your policy is active when your provider can review your application for intentional errors
If they discover major discrepancies, insurers can cancel your policy or reduce the death benefit payout
The contestability period resets if you fail to pay premiums and let your policy lapse
Unless your policy includes an incontestability clause, you can still be punished for false information after two years
When you buy life insurance, you’re purchasing financial protection for your beneficiary in the event of your premature death. But say you die shortly after taking out the policy. While your beneficiary should still be eligible to receive the death benefit, there’s a small risk that the insurer will review your application and decide to deny the claim or reduce the amount your beneficiary receives.
Also known as the contestability period, the insurance company can review your policy during the first one to two years after the day the policy goes in force. If the insurer finds intentional inaccuracies in your application — for example, if you purposefully failed to mention a depression diagnosis — they can reject or reduce the death benefit payout.
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The contestability period is the one to two years after your life insurance policy goes into effect when the life insurance company is allowed to review your coverage for anything you misrepresented during the application process. The contestability period exists to protect the life insurance company from fraud. The insurer wants to make sure that you didn’t withhold or lie about any health- or lifestyle-related information during the application process in order to get more affordable coverage.
If you die during the contestability period and any misrepresentations come to light, then the life insurance company may cancel your policy, refuse to pay the death benefit, or subtract money from the death benefit based on the amount of premiums you should have been charged, leaving your beneficiaries without the full financial support for which you paid.
The misrepresentations don’t even have to be related to your cause of death. If you die from choking on a pretzel, but you also had an undisclosed drug or alcohol problem or failed to disclose that you had five polyps removed from your colon, your policy can be canceled.
The contestability period accounts for nuances in your risk profile. Your life insurance company could contest your application if you claimed to be an occasional diver, but it turns out that you frequently dived in a shark cage surrounded by great whites.
If you made a simple mistake on your application, like forgetting to name a prescription, don’t be too worried. Insurers will generally give you a chance to explain and correct inconsistencies. Their real concern is that someone might hide or lie about information in order to take advantage of the lower premiums meant for less risky policyholders.
If you were purposefully dishonest, insurance providers have ways of finding out. During the underwriting process, most people undergo a medical exam, which includes routine blood and urine testing. Underwriters may also confirm your statements against a report from the Medical Information Bureau (MIB), which compiles information like previous surgeries and medical diagnoses or treatments using other insurance applications you’ve completed. If the life insurer discovers that you lied, that will go on your MIB report too, which could cause other insurers to deny you coverage in the future.
While insurers are less likely to investigate a claim after the two-year timeframe, many policies include language that allows providers to deny or reduce the death benefit even if they find fraud after the contestability period ends. And if the life insurance company detects a misrepresentation in your application while you’re still alive, it can still cancel the policy and return any premiums you’ve paid (minus any fees) or increase your premiums. Being completely honest is the best way to ensure your beneficiaries are protected in the long run.
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Just because your life insurance company is investigating the circumstances around your death does not mean that it’ll reject your beneficiary’s claim. The contestability period exists to make sure the information you supplied on your application was accurate. If it was, your beneficiaries are good to go.
Even if the information does contain some flaws, the insurer may still pay the death benefit. This will happen if the mistake is over something minor, like a small difference in your weight, but bigger errors mean it’s more likely that the claim could be denied or reduced. Be as meticulous as possible when applying: You don’t want to risk your beneficiaries losing out.
Once you’re out of the two-year window, your policy won’t be subject to contestability if you die. As long as you were honest when applying and keep paying your premiums, your beneficiaries will remain covered and receive the full death benefit.
But if you fall behind on your premiums, your policy may lapse. Most policies include a payment grace period — set by the insurer but usually 30 or 31 days — that allows you to be a little late on a premium payment. If you fail to pay within the grace period, you’ll have to reapply for life insurance in order to get coverage for your loved ones again.
If a lot of time has passed since you bought the original policy, you could pay higher premiums based on your age alone, and the premiums will be even higher if you became less healthy or if your insurer deems you a financial risk. Most of the usual steps you took when applying for life insurance the first time will have to be taken again, including retaking the medical exam.
You’ll also be subject to a new contestability period. Think of it as if you were getting life insurance coverage for the first time. If you die within the two years after your reinstatement application is in force, your beneficiaries could lose out on the death benefit just as they would during the contestability period the first time around.
The life insurance company won’t pay the death benefit if you die by suicide within two years of taking out the policy. This rule is called the “suicide clause,” and though it’s related to the contestability period, it’s actually a separate part of your policy.
Contestability is simply the life insurance company’s right to investigate your cause of death. If during the investigation the insurer finds that your cause of death was self-harm, then it will reject your beneficiary’s claim. The suicide clause exists to deter someone from buying a policy with the intention of harming themselves and leaving money to their beneficiaries, and applies even in legal right-to-die situations.
The suicide clause only applies to the first two years the policy is in force. If the insured dies by suicide after that period, then the life insurance company will likely pay the death benefit. As with the contestability period, the two-year window resets if your policy lapses and you have to buy a new one.
If you’re feeling hopeless or like you have no reason to live, or know someone going through those feelings, please call the National Suicide Prevention Lifeline at 1-800-273-8255. Someone will be available to talk and provide support.
After the contestability period ends, it’s often still possible for the life insurance company to discover fraud and withhold or reduce the death benefit. But some policies won’t allow the provider to review claims after two years have passed.
The incontestability clause included in some policies prevents insurers from investigating claims made after the contestability period ends, protecting your beneficiaries from having a claim denied due to an error or misrepresentation. Not all policies contain an incontestability clause, so read your policy thoroughly or ask your insurer for help understanding your coverage if you’re unsure whether you have this protection.
Contestability is not a way for life insurance companies to punish you for genuine errors that are easily corrected, but for identifying if you intentionally gave the insurer incorrect information in order to avoid paying higher premiums. If you purposefully misled the insurer on your application, then your loved ones could be denied some or all of the death benefit after you die. To feel confident in the financial protection your life insurance policy will provide your beneficiaries, it’s best to be forthcoming throughout the entire life insurance application process.
About the authors
Zack Sigel is a SEO managing editor at Policygenius. He covers personal finance, comprising mortgages, investing, deposit accounts, and more. His previous work included writing about film and music.
Amanda Shih is an insurance editor at Policygenius in New York City. Previously, she worked in nonfiction book publishing and freelance content marketing. Amanda has a B.A. in literature and communication from New York University.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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