What Is a Life Insurance Contestability Period? What You Need To Know

People Signing Papers

Your life insurance policy is one of the best ways to ensure your loved ones' financial security after your death.

But do you know what happens if you die within two years of taking out your life insurance policy?

The insurer can potentially dispute the claim.

This might seem alarming, but there’s no need to panic as long as you tell the truth on your life insurance application; that two-year period - or the contestability period - is nothing to worry about.

Below is everything you need to know about the contestability period.

What Is a Life Insurance Contestability Period?

The contestability period is a period of time after your life insurance goes into effect. In some states, it is two years, and in others, it is only one year.

If you die during that time, the insurance company can delay payment of benefits. During that delay, they'll review your coverage for any misrepresentations on your application. If the insurance company finds that you lied or misrepresented any of your information, they can deny the death benefit payment.

Misrepresentations don’t need to be related to the cause of death for the insurance company to deny a claim. For example, drowning may have been the cause of your death. But a claim can be denied if you didn't include your long-term smoking habits in your application.

The insurance company will pay interest for any delayed payments in cases where no misrepresentations are found.

The Purpose of the Contestability Period 

Some people try to take advantage of life insurance companies by lying on their applications to get lower premiums.

The contestability period is in place to protect insurance companies from fraud. It seeks out anyone who knowingly concealed or lied about information to get a lower premium.

There's no need to worry if you made a simple mistake on your application. Contestability is not intended to penalize someone who makes a genuine mistake. You’ll have an opportunity to explain and correct any unintentional errors.

The Risk of Lying on Your Application

While filling out your application, it may be tempting to leave out certain facts about your health, lifestyle, or family history. There are a lot of reasons why you shouldn’t do that.

Life insurance companies have access to Medical Information Bureau (MIB) reports. The MIB has medical information that life insurance companies can reference. They'll look for any discrepancies between the MIB and the information you provided in your application.

The application will ask for your physical exam results. Insurance companies will also collect medical records from your doctor. It’s likely the insurance company will identify any information you left out of your application.

If the insurance company finds out you withheld information on your application, they’ll likely increase your premium. The premium change will reflect what you would have been paying all along if you had supplied the information upfront. In extreme cases, the insurance company will terminate your insurance.

Depending on the insurance company’s policy language there is the possibility that they can end your insurance at any time if they discover misrepresentations, including after the contestability period ends.

The best way to ensure your wishes will support your beneficiaries, in the long run, is to provide accurate and thorough information when applying for life insurance.

How Does Contestability Affect the Death Benefit?

Even if the insurance company is investigating the circumstances around your death, it doesn’t mean your beneficiaries won’t get paid. The beneficiary claim should get approved if your application was thorough and accurate.

But what happens with the death benefit if an insurance company finds misrepresentations?
If there are honest mistakes, the insurance company will still pay out the death benefit. In other cases where you blatantly lied, the insurer may deny the claim. This usually depends on the size of the claim and how egregious the misrepresentation was.

How a New Contestability Period Can Be Triggered

If you fall behind on your premium payments, your life insurance policy will eventually lapse. You’ll have to reapply for a new policy and be subject to a new 2 year contestability period. The same rules that applied the first time you got life insurance will also apply here.

It Pays to Tell the Truth

Are you ready to make sure your life insurance completely protects your loved ones?

Providing truthful and complete information on your life insurance application is the best way to help your loved ones avoid issues with the contestability period.

Do you need more information? Check out our website to get advice, and more importantly, to financially protect your family for the future.

 


Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Vantis Life encourages individuals to seek advice from their own investment or tax advisor or legal counsel.