The Life Insurance Contestability Period: What You Should Know
The death of a loved one can have a profound effect on our lives. Losing a close relation is difficult enough, but sometimes insurers can make the recovery process much more challenging by not paying out on a life insurance policy, including by challenging coverage during the contestability period.
If you plan on getting life insurance or you need to make a claim, it’s in your best interest to understand some of the key components of the contestability period so you can avoid any issues in case of an investigation. Keep reading to learn more about the contestability period for life insurance claims.
Key Takeaways
During the first two years after a new policy is signed, life insurance companies can reject claims and cancel policies based on inaccurate information in policy applications.
This two-year window, known as the contestability period, gives insurers a chance to investigate applications and prevent fraud.
If your insurer finds missing or incorrect answers, your policy may be canceled, or your premiums may increase.
If your insurer is refusing to pay full death benefits due to application issues, get help from a life insurance lawyer as soon as possible.
What Is the Contestability Period?
The contestability period exists to protect insurers from fraud. During this time frame, the insurer has the ability to investigate claims by reviewing the life insurance application, the insured's medical history, as well as determining whether there was material misrepresentation in the policy application. This may include misrepresentations or omissions about medical conditions or high-risk activities, such as scuba diving or heavy alcohol use.
In Texas, and throughout the United States, life insurance providers generally have a two-year window for the contestability period. The clock starts the day after the life insurance policy has come into effect. After the contestability period begins, your insurance agent will review your application to ensure it contains only accurate information.
When the contestability period ends, the life insurer can no longer deny claims based on application details. However, keep in mind that you may still face claim denials related to issues that are separate from the contestability period, such as lapsed policies, suicide clauses, or fraud.
What You Need to Know About Contestability and Death Benefit Claims
Obtaining coverage through a life insurance policy isn’t always easy, and the contestability period can make things even more complicated. If you plan on making a life insurance claim or purchasing a policy, you need to know the following facts about how the contestability period works:
Insurance companies will investigate your life insurance application. This means you need to always be straightforward when answering questions during the application process and be as honest as possible. Understandably, minor mistakes may be made when answering questions, but you should never purposely lie or withhold information on any of the forms. Your insurer will check every part of your application, from medical records to lifestyle habits.
You can still be held liable for fraud even after the contestability period. Fraud is fraud regardless of when it is done. Once again, always make sure to answer every question throughout the application period to the best of your ability and truthfully. On top of dealing with the loss of a loved one, you don’t want to have to deal with a possible denial because of a minor misrepresentation.
Accidental mistakes do not guarantee a rejection of your claim. If you inadvertently answered a question on your insurance application that is later shown to be factually wrong, that does not necessarily mean your claim will be wholly rejected. Instead, the insurance company may calculate what the premium on the policy should have been and reduce the benefit amount based on that number. Ultimately, however, the insurer is given the right to make the decision based on how severe the misrepresentation was.
The contestability period does not mean the contract is void. The two year contestability period provides insurers with the ability to investigate your claim for false information, but if everything is accurate and no misrepresentation is found, they still have to pay the life insurance benefits. As long as the insurance policy was in effect and all information is shown to be valid, then you are rightfully owed your just due.
Be wary of a new contestability period if you transfer policies. Be aware that if you fail to pay your premium and must get it reinstated, or if you decide to purchase a new policy, even from the same company, you will face a new contestability period. Insurers may even purposely push you to purchase a newer policy knowing that a new contestability period will take effect.
An investigation during the contestability period may lead to payment delays. If the insured dies during the contestability period, the application will be checked before benefits are paid. Any sort of irregularity in the information provided, including the cause of death, may lead to an investigation, which will lead to a postponement in payment. However, if you notice that the insurer is stalling continuously, this may be the sign of a bad faith tactic.
What Happens If the Insurance Company Finds Material Misrepresentation?
Incorrect information, application errors, and missing information can each cause you problems during the contestability period. There are a number of possible outcomes should your insurer happen to find mistakes in the application or if they determine that misrepresentation occurred:
If the insurance company finds a mistake in the application, the policy may be annulled, but the premiums paid will be returned to the policyholder’s beneficiary.
If a misrepresentation is found, the insurer may create a calculation for what the actual premium should have been and then subtract that from the payout amount.
If an investigation takes place and the insurer verifies that there were no issues with the original application, then the beneficiary's claim may be paid in full.
What to Do In Case of Bad Faith Contestability Investigations
If your loved one filled out the insurance policy truthfully and correctly, there is no reason that their family should have to deal with the stress of an investigation. However, insurance companies will often utilize this contestability window to avoid having to pay a claim or to reduce the amount paid. If you received a denial from your insurer, you should get help from a life insurance attorney.
Our experienced and trustworthy team will make sure that the insurers are acting legally and not in bad faith. We know how to deal with insurance companies - no matter how big they are.
Contact us today for a free consultation. We can help beneficiaries take action against bad faith insurance company tactics.
