What You Should Know About Life Insurance Contestability Period
The death of loved one can have a profound affect 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.
In Texas, and throughout the United States, life insurance companies generally have 2-year window known as the contestability period. The clock starts the day after the life insurance policy has come into effect.
The contestability period was developed as a means by which to prevent cases of insurance fraud. During this time frame, the insurer has the ability to investigate a life insurance claim by reviewing the life insurance application, the insured’s medical history, as well as determine whether there was material misrepresentation.
Unfortunately, families are often unsure what steps to follow after a claims denial, but it is important to remember that you can obtain legal support from bad faith insurance lawyers like Millin & Millin to help you find out exactly why your claim is being delayed or denied.
It is also in your best interest to understand some of the key components of the contestability period so you can avoid any issues should you have to undergo investigation.
- 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.
- 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 on 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. This 2-year time frame provides insurers with the ability to investigate your claim, but if everything is accurate and no misrepresentation 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 insurer notices any sort of irregularity in the cause of death, then they may investigate the claim, 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 that material misrepresentation occurred?
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.
- An investigation takes place with no issues and the benefits are paid in full.
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.
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, then it is in your best interest to contact the bad faith insurance law offices of Millin & Millin in McAllen, TX.
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.