In the first two years of your policy — the contestability period — your life insurer can review your application and refuse to pay out a claim if they find evidence of fraud.
When you buy life insurance, you’re purchasing financial protection for your beneficiary in the event of your death. But say you die shortly after taking out the policy, during the contestability period . While your beneficiary should still be eligible to receive a payout, your insurer has the right to review your application materials for inaccuracies.
Contestability only applies if the insurer finds intentional misrepresentations in your application. For example, if you purposefully concealed a depression diagnosis, they can reject or reduce the death benefit to your beneficiary.
Contestability allows your provider to review your application for intentional errors after a death claim
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 your policy lapses
Unless your policy includes an incontestability clause, you can still be punished for false information after two years
The contestability period is 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 to get more affordable coverage.
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, the life insurance company can deny a claim.
Contestability accounts for nuances in your risk profile, too. Your provider can deny a life insurance claim if you stated that you’re a private pilot and they discover that you’re still a student pilot, for example.
If you made a simple mistake on your application, like forgetting to name a prescription, don’t worry. There are opportunities to explain and correct unintentional errors. Contestability is intended to penalize someone who hides or lies about information to take advantage of the lower premiums meant for less risky policyholders.
If you are 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 compare 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 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.
If your life insurance company finds a misrepresentation in your application while you’re still alive, it can still cancel the policy or increase your premiums, even after the contestability period ends. 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. If you supplied accurate information on your application, your beneficiaries are good to go.
Even if the information does contain some flaws, the insurer may still pay the death benefit or pay a reduced benefit that accounts for the higher premiums you should have paid. This will happen if the mistake is over something minor, like a small difference in your weight, but bigger discrepancies increase the chances that the claim will be denied. Be as thorough as possible when applying: You don’t want to risk your beneficiaries losing out on the death benefit.
Once you’re out of the two-year contestability window it’s far less likely that your provider will investigate a death claim. But if you fall behind on your premiums, your policy will eventually lapse, and you’ll have to reapply for life insurance to restore coverage for your loved ones.
In addition to higher premiums based on your older age and having to go through the full underwriting process again, a policy lapse also subjects you to a new contestability period. If you conceal information in your new application and die during the first two years your reinstatement application is active, your beneficiaries could lose out on the death benefit just as they would the first time around.
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Your life insurance policy also includes a “suicide clause,” which overlaps with the contestability period but is a separate part of your policy. Contestability gives the life insurance company the right to investigate your cause of death. But if the investigation shows that your cause of death was self-harm, the suicide clause gives the company the ability to reject your beneficiary’s claim.
Suicide clauses exist 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. If you die by suicide after two years, then the life insurance company will 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 experiencing those feelings, please call the National Suicide Prevention Lifeline at 1-800-273-8255. Someone will be available to talk and provide support.
Often it’s possible for the life insurance company to withhold or reduce your death benefit if they discover fraud in your application after contestability ends. But, some policies include an incontestability clause that prevents insurers from investigating claims made after the contestability period ends. Not all policies contain an incontestability clause, so read your policy thoroughly or ask your insurer for help 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 is used to identify anyone who intentionally gave the insurer incorrect information to avoid paying higher premiums. If you purposely mislead the insurer in your application, then your loved ones could be denied some or all of the death benefit. 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.
If you die within the first two years of owning your life insurance policy, contestability allows your provider to review your application for intentional misrepresentations.
If an insurer contests a life insurance claim, they will deny or reduce the death benefit paid out to your beneficiaries and provide a detailed explanation as to why the claim was contested.
Your provider can cancel your policy or deny a claim due to fraud found on an application at any time, but it’s less likely they’ll investigate claims after the contestability period ends.
Most life insurance application errors are caught before the application is approved. You’ll be able to correct accidental errors and be declined coverage for intentional false statements. If you’re approved, your policy can be canceled or your claims can be denied once the inaccuracy is found.
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