What is the Incontestability Clause?
Unlike breathing, trusting your insurance company is not innate. That’s because over the years, insurance companies have engaged in some pretty shady practices. In fact, let’s pause for a brief history lesson: In the late 1800s, insurance companies were known for finding any reason to withhold payment to beneficiaries, using all sorts of dirty tricks and technicalities. A life insurance policy started to mean nothing to the average person.
Fortunately, a group of more reputable insurance providers came together and decided to create the incontestability clause! For those of us who aren’t insurance experts, here’s what you need to know: An incontestability clause helps to combat decades of bad behavior because it limits how long an insurer can contest your claim.
This contractual provision means that after a certain period of time, your provider cannot challenge the validity of a claim — even if errors or issues have been discovered. Essentially, the insurance company can't disqualify you from benefits based on a tiny technicality after years of payments.
Nowadays, from California to New York, state laws across the country require companies to include an incontestability provision. So to summarize: any life insurance policy worth its salt will come with an incontestability clause, which exists to protect your rights and coverage.
Now let’s dive deeper into how these things work, and what benefits it has for you.
How the Incontestability Clause Works
Before we can go into the specifics of how incontestability clauses work, let’s first walk through how life insurance companies operate.
Now, there’s a period of time here that is known as the contestability period. This refers to the initial two years your policy is in force, during which time the insurer can ‘contest’ the policy application.
Basically, this is when a provider can call you out for misrepresenting yourself on your application. But after those two years, you’re in the clear!
And if you make a genuine mistake that insurance does catch during the contestability period, it’s possible that they may just fix it for you and carry on with coverage as usual. But that depends on your provider and your policy.
Benefits of the Incontestability Clause for Policyholders
While the incontestability clause is no magic pill (it won’t get you out of fraud or nonpayment, for instance), it is still incredibly beneficial. In fact, it offers some of the strongest forms of protection available to policyholders. Specifically, both you and your beneficiaries will get:
- Protection against claim denial: Say you accidentally put the wrong gender down or forgot to mention you have asthma in your life insurance application. Your insurance company can’t withhold benefits after you pass because of one of these mistakes if the contestability period is over.
- Peace of mind and security: Financial security (not to mention avoiding prolonged fights with an insurance company) can bring peace of mind to all involved.
Navigating Challenges with the Incontestability Clause
There are, of course, exceptions. In most states, if you misstate your age or gender on your life insurance application, your policy cannot be voided following the contestability period — but the death benefits can be adjusted accordingly.
There are also rules in some states about the timing of the insurance application. If a policyholder applies for life insurance when they’re already quite sick, and they happen to die before the contestability period ends, then some providers may refuse to pay beneficiaries.
And if deliberate fraud is discovered, you’ll probably be in trouble. Intentional lies and omissions are a big no-no when it comes to applying for insurance.
Because legal requirements vary between states, make sure you talk to your provider to learn exactly where you stand with your specific policy. Here are some additional circumstances to consider:
- Employee-sponsored policy: Some employers offer life insurance. If you change jobs, you may need to inform the insurance provider so that they don’t have grounds for benefit rejection.
- Differing contestability periods: A contestability period is usually two years, but it can be less (or more!). Make sure to double-check this in your policy.
- Big-time violations: Beyond a deliberate omission, there are other disqualifying events where even the incontestability clause can’t save you. Most are pretty dire, like murder (!) but still, it’s good to know what you’re getting into.
A life insurance agent can help you navigate these complexities and help you work through any specialized situations — so don’t hesitate to reach out and schedule a call with a professional.
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