Understanding the Life Insurance Contestability Period: Why Transparency Matters

When purchasing life insurance, most people assume that the policy will pay out promptly when they pass away, providing their loved ones with the financial protection they intended. While this is often true, there is an important clause to be aware of: the life insurance contestability period. Understanding this period and the importance of being fully transparent during the application process can help avoid claim denials and ensure peace of mind.

What Is the Contestability Period in Life Insurance?

The contestability period is typically a two-year timeframe from the date your life insurance policy is issued. During this period, if the insured passes away, the insurance company has the right to review the application and investigate whether any important information was omitted or misrepresented.

If they discover a material misrepresentation (meaning incorrect or missing information that would have affected their decision to provide coverage or the premium amount), they may deny the claim or adjust the payout.

It’s Not Just About the Cause of Death

The reason for the insured’s death does not need to be related to the misrepresentation for the insurer to deny the claim. For example, if the insured failed to disclose a past heart condition and died in a car accident, the insurer can still deny the claim if the omission is deemed material.

Why Does the Life Insurance Contestability Period Exist?

The contestability clause protects insurers from applicants who may intentionally withhold or misrepresent important details to secure coverage they wouldn’t otherwise qualify for or to obtain lower premiums. Examples of information that insurers expect full disclosure on include:

• Medical history (past diagnoses, treatments, or scheduled follow-ups)
• Lifestyle habits (smoking, alcohol consumption, or high-risk activities)
• Ongoing or pending medical investigations

Without this clause, insurers would face higher risks from individuals who could game the system to secure favorable terms.

What Happens if the Insurer Finds a Misrepresentation?

When reviewing a claim, the insurer determines whether the omission or incorrect information qualifies as material under their underwriting guidelines. Here are some possible outcomes:

1. Non-Material Misstatements

Example: Forgetting to disclose a routine check-up with normal results.

• If the omitted information would not have impacted insurability or premiums, the insurer wouldn’t deny the claim. Minor, honest mistakes that don’t change the risk level are generally not penalized.

2. Material Misstatements with Minor Impact

Example: Forgetting to mention a past diagnosis that would have resulted in a slightly higher premium, such as mild hypertension or sleep apnea.

• The insurer may reduce the payout  since additional premiums would have been charged if the information had been disclosed.

3. Major Material Misstatements

Example: Failing to disclose a scheduled follow-up with a specialist that led to a cancer diagnosis.

• If the insured did not disclose an ongoing or pending medical investigation, and the follow-up resulted in a serious diagnosis, the insurer may deny the claim entirely. This is because, had the information been disclosed, the policy would not have been issueduntil after the follow-up results were reviewed.

4. Intentional Misrepresentation (Fraud)

If the insurer determines that the insured knowingly withheld or falsified key information to mislead them and benefit from lower premiums, they will likely deny the claim entirely and typically refund the premiums paid.

How the Incontestability Clause Protects Policyholders

Once the two-year contestability period ends, most policies become incontestable. This means the insurer cannot deny a claim due to misstatements on the application, unless they can prove that the insured committed fraud. This clause was created to protect policyholders from insurers searching for reasons to deny claims long after the policy was issued.

Exceptions to Incontestability:

• Policy lapses and reinstatements: If the policy lapses and is later reinstated, a new two-year contestability period may begin.
• Policy changes: Significant adjustments, such as increasing the coverage amount, may also trigger a new contestability period.

Understanding the Suicide Clause

Many life insurance policies include a suicide clause that overlaps with the contestability period. If the insured dies by suicide within the first two years of the policy, the insurer will typically deny the claim and refund the premiums paid. After the two-year period, death by suicide is usually covered.

How to Avoid Issues During the Contestability Period

1. Be Transparent on Your Application: Fully disclose your medical history, including past diagnoses, treatments, and ongoing medical investigations. Even minor omissions can be flagged during a claim review.
2. Review the Application: Double-check that all information provided is accurate and complete. You will receive a copy of all the answers you provided when you receive the policy.
3. Stay Informed About Policy Changes: If your policy lapses or you make changes, be aware that a new contestability period may apply.

What to Do if a Claim Is Denied During the Life Insurance Contestability Period

If a life insurance claim is denied due to alleged misrepresentation, don’t assume the denial is final. Some denials can be challenged, especially if the misstatement was minor or accidental.

Steps to Take:

• Review the denial letter to understand the reason for the denial.
• Gather documentation such as medical records and application forms.
• Consult a legal or insurance expert to determine if the denial can be overturned.

Final Thoughts: The Importance of Transparency

The contestability period exists to protect insurers, but it also highlights the importance of being as transparent as possible when applying for life insurance. Providing accurate information upfront ensures that your loved ones will receive the financial protection you intended for them without unnecessary complications.

If you have any questions about your life insurance policy or how the contestability period might affect you, reach out to us. We’re here to help you navigate the process and secure the peace of mind you deserve.