Life Insurance: Contesting Policies After 2 Years

The life insurance contestability period is a two-year window during which insurance companies can investigate and deny death claims if they find evidence of fraud or misrepresentation on the part of the policyholder. This period typically begins when the policy is issued and allows insurers to review applications for incorrect information, deterring fraud and controlling the cost of insurance. While most claims filed within this period are not investigated, insurers have the legal right to do so, especially if there is a reason to suspect misrepresentation. Being honest on insurance applications is crucial, as providing false information can lead to severe consequences, including policy cancellation, denial of future coverage, and legal action.

What is the life insurance contestability period?

The life insurance contestability period is a short window, typically two years from the policy's start date, during which the insurance company can review and deny a claim if they find that the policyholder misrepresented or omitted important information on their application. This period is designed to protect the insurance company from fraud and to ensure that customers are getting the best plan for their health and lifestyle. It gives the insurer a chance to investigate any aspect of a policyholder's health that could have been misrepresented on their application.

During the contestability period, the life insurance company can be exempt from paying out the death benefit if it finds intentional misrepresentations in the policyholder's application. For example, if the policyholder had concealed a depression diagnosis, the company could deny or reduce the amount the beneficiary receives. The misrepresentations do not have to be related to the cause of death. For instance, if the policyholder died in a car accident but had failed to disclose a history of alcohol abuse, the life insurance company can deny the death claim.

The contestability period exists on most types of life insurance policies, including term life and permanent life insurance policies. It also restarts if the policy lapses and is then reinstated. While most US states have a contestability period of two years, Missouri has a contestability period of one year.

If the insurance company finds an instance of fraud, two things can happen:

• If the missing information would have caused the application to be denied originally, zero death benefit will be paid.
• If the missing information would have resulted in higher premiums, the difference will be taken from the death benefit amount and the beneficiary will receive the remaining balance.

The best way to ensure that beneficiaries receive their payout is to be honest and forthcoming on the life insurance application.

Why is there a contestability period?

The life insurance contestability period is a short window, typically lasting two years from the date of policy approval, during which insurance companies can investigate and deny death claims. This period gives insurers the opportunity to determine if any information given on the application was false or incomplete. It is important to note that this period may vary by state, with Missouri having a contestability period of one year.

The purpose of the contestability period is twofold: to deter fraud by allowing insurers to thoroughly vet applications, and to help insurers spot any misrepresentation, which helps control the cost of insurance due to misrepresented claims. This period exists to protect the insurance company from fraud and to ensure that customers are getting the best plan for their health and lifestyle.

During the contestability period, the life insurance company can be exempt from paying out the death benefit if it finds intentional misrepresentations in the policyholder's application. For example, if the policyholder had a pre-existing medical condition, such as depression, and failed to disclose it, the company could deny or reduce the amount the beneficiary receives. It is important to note that the misrepresentations do not have to be related to the cause of death. For instance, if the policyholder died in a car accident but had failed to disclose a history of alcohol abuse, the life insurance company could still deny the death claim.

While the contestability period is when insurers are most likely to investigate a death claim, they can investigate any claim at any time if there are signs of fraud. Therefore, it is crucial to be completely honest on a life insurance application. While lying on the application may result in lower premiums in the short term, it could mean no financial support for your family later on.

What happens if you lie on your application?

Lying on your life insurance application can have serious repercussions. If the insurance company finds out that you've lied, they can deny your claim, cancel your policy, or even take legal action against you. In some cases, you may face hefty fines or jail time if convicted of insurance fraud.

During the underwriting process, the insurance company will review your application and assess your risk level. This usually includes a medical exam, with routine blood and urine tests, to verify the information you provided. They will also compare your statements against reports from the Medical Information Bureau (MIB), which compiles information from other insurance applications you've completed.

If the insurance company discovers any inconsistencies or lies on your application, this will be noted in your MIB report. This could lead to other insurers denying you coverage in the future. Even if you made a simple mistake on your application, such as forgetting to mention a prescription, it's important to contact your insurance agent and update your information.

If you lie about critical information, such as your medical history or lifestyle choices, the insurance company may deny your claim or cancel your policy during the contestability period. This period, typically the first two years of the policy, allows the insurance company to investigate your application for fraud or misrepresentation. While it is rare for a claim to be denied after the contestability period, it is still possible if you intentionally lied on your application.

Being honest on your life insurance application is crucial. While lying may get you lower premiums in the short term, it could mean no financial support for your family if your claim is denied. The contestability period is in place to protect the insurance company from fraud and to ensure that you, as a customer, are getting the best plan for your health and lifestyle.

What happens if your policy lapses?

If you stop paying your life insurance premiums, your policy will eventually lapse and become inactive. This means you will lose coverage, and the insurer will not pay a death benefit to your beneficiaries if you die. However, there is usually a grace period of around 30 days, depending on your policy and state, during which you can reinstate your policy by paying the outstanding premium and any associated late fees. Some insurers may extend the grace period to 60 or 90 days. During the grace period, your policy remains active, and your beneficiaries will still receive a payout if you die, although any missed payments will be deducted from the total payout.

If your policy has lapsed, you will need to reapply for life insurance through a new policy to regain coverage. This means you will pay higher premiums based on your older age, and you will have to go through the underwriting process again. You will also start a new contestability period, so if you conceal information on your new application and die during the first two years of the new policy, your beneficiaries could lose out on the death benefit.

If you have a permanent life insurance policy, such as a whole life insurance policy, you may be able to go longer without making payments. If your policy has built up cash value, you could use it to cover premium payments. If you have a whole life policy, you may also be receiving dividends that can be used to offset premiums. Talk to your insurance company about whether these options are available to you and how they will impact your policy.

Insurers typically allow three to five years to reinstate a policy after it lapses. However, they have certain requirements for reinstatement, including submitting a reinstatement application, filling out a questionnaire about your health, and attesting that your health condition hasn't changed since your policy was approved. You will also have to pay all the premiums owed, and interest may be charged on past-due premiums.

What happens after the contestability period?

After the contestability period, which is usually two years, the policy becomes incontestable, meaning that the insurance company cannot deny a claim. However, it is still possible to have intentionally misrepresented facts on your application, although this is very unlikely. The chances of a claim being investigated years down the line are slim.

The contestability period exists to protect the insurance company from fraud and to ensure customers are getting the best plan for their health and lifestyle. It is beneficial to be as honest as possible when applying for life insurance. While lying on the application may result in lower premiums in the short term, it may mean no financial support for your family later on.

Although the contestability period typically ends after the first few years of a policy being active, insurers can still deny claims later on if you intentionally lied when you applied for coverage. However, it is less likely that an insurer will investigate your death for any fraudulent claims if you die outside of the contestability period window.

Frequently asked questions