An incontestability clause in most life insurance policies prevents the provider from voiding coverage due to a misstatement by the insured after a specific period has passed. Typically, this period spans two to three years, after which the insurance company can no longer cancel the policy because of errors or omissions made by the insured in their application.
Incontestability clauses are crucial in protecting policyholders from insurers attempting to avoid paying benefits in the event of a claim. However, it’s important to note that these clauses do not provide protection against outright fraud.
Key Takeaways
- Most life insurance policies feature an incontestability clause.
- This clause prevents providers from canceling coverage due to misstatements after a designated contestability period, usually two or three years.
- The contestability period begins as soon as the life insurance policy is purchased.
How an Incontestability Clause Works
The incontestability clause in life insurance policies stands as one of the strongest protections for policyholders and their beneficiaries. Unlike many other legal rules that lean in favor of insurance companies, this particular rule provides robust consumer protection.
Generally, contract laws allow the voiding of agreements when one party provides false or incomplete information. However, the incontestability clause restricts insurance companies from leveraging this rule against policyholders.
Nevertheless, lying with the intent to deceive can still result in the cancellation of coverage or even criminal charges.
Three Common Exceptions to the Incontestability Clause
- Misstated Age or Gender: In many states, if the insured person misstates their age or gender, the insurance company may adjust death benefits to match the policyholder’s true age or gender but won’t void the policy.
- Incomplete Contestability Period: Some states allow for a provision where a one- or two-year contestability period must be completed within the lifetime of the insured. Thus, if a policyholder passes away before this period concludes, the insurance company can refuse to pay out benefits.
- Fraud: In some states, policies can still be voided if clear and deliberate fraud is proven.
How Incontestability Clauses Help Consumers
Errors are fairly common when applying for life insurance due to the detailed medical history required by insurers. A single forgotten detail could otherwise give insurers grounds to deny a claim.
Reputable insurance companies began incorporating incontestability clauses in the late 1800s to foster trust among consumers. By ensuring full benefits after a policy has been in place for two years—errors included—these companies saw a significant improvement in their industry image.
Today, once a life insurance policy is purchased, the contestability countdown begins. If the insurer hasn’t identified any application errors within two years, the benefits are secure. Even within the contestability period, insurers must go through legal channels to rescind a policy, making it significantly harder to render a policy null and void.
What’s an Incontestability Clause?
An incontestability clause is a consumer protection provision that prevents insurance companies from voiding coverage due to a misstatement by the insured after a specified period, usually two to three years.
How Does It Protect Consumers?
Applicants often strive to complete their life insurance applications accurately, yet simple mistakes can happen. The incontestability clause ensures that insurance companies can’t use these errors as a reason to void coverage after the designated contestability period, securing the policyholder’s benefits.
What Are a Few Exceptions?
- Misstated Age or Gender: Permits insurance companies to adjust death benefits to reflect the actual details while keeping the policy intact.
- Incomplete Contestability Period: Benefits may be denied if the policyholder dies before completing this period due to poor health at application time.
- Fraud: Policies can still be voided if intentional and proven fraud occurred.
Explore how incontestability clauses in life insurance can be your strongest ally and safeguard your investment in your family’s future.
Related Terms: Life insurance policy, Consumer protection, Insurance terms.
References
- William Mitchell Law Review. “Contracts - Applying the Plain Language to Incontestability Clauses.” Page 4.
