All life insurance policies come with something called a “contestability period” clause. This clause allows life insurance companies to contest a claim on the insurance policy if the insured person passes away within two years of the issue date on the life insurance policy. The contestability clause intends to protect the life insurance companies from fraudulent claims or misrepresentations made by the insured on their life insurance policy applications. Our life insurance lawyers fight all life insurance claims that were denied.
When a person applies for life insurance, they must complete an application. This application asks the applicant questions about the applicant’s basic demographics, medical history, habits, hobbies, employment, et cetera. The point of these questions is to determine the risk profile for that applicant and the premium the applicant will have to pay for life insurance coverage. For example, a 50-year-old person that smokes, is a cancer survivor, and works in a dangerous profession is going to pay a far higher life insurance premium than a 22-year old that has a clean medical record and works as an accountant. Unfortunately, some people make misrepresentations on their life insurance policy applications so that they can pay less for their life insurance policy premiums.
If the life insurance company decides to contest a claim, they will investigate the insured’s medical records and the information the insured provided on their life insurance applications. The life insurance company is looking for material misrepresentations made by the insured on the life insurance application. For example, if the 50-year-old we discussed above states that they do not smoke and that they work a desk job on their life insurance application, that person made material misrepresentations on their life insurance application. These material misrepresentations can result in the life insurance company denying a claim on the life insurance payout, or even canceling the life insurance policy. The life insurance company may even deny a life insurance payout or cancel the life insurance policy if the insured’s death was not related to the material representations in the life insurance application.
After the two-year contestability period ends, misrepresentations on the life insurance application are usually not an issue. However, there can be exceptions and exclusions that may come into play.
It is important that insured people provide accurate and true information on their life insurance applications. Failure to do so may very well result in your beneficiaries not receiving a payout or being forced to fight the life insurance company to get the benefit the insured planned for and worked so hard to save for. It is also important that beneficiaries understand why a life insurance company may contest the life insurance payout or the life insurance policy itself.
A life insurance policy is an important piece of financial planning for families. Families pay hundreds and thousands of dollars into these accounts to plan for and protect against tragedies. In the unfortunate event that the insured person passes away, these policies are meant to care for spouses and children. Many times the payouts from these policies play an important role in keeping a family afloat during extremely trying times, and may even be a grieving family’s only source of income after the family’s breadwinner passes away. However, a divorce can create all kinds of problems for life insurance policyholders and their beneficiaries.