Jane Dotson
In insurance terms, contested refers to the period of contestability, which is a clause included in all life insurance policies. During this period, the insurance company can investigate a death claim and deny a payout if they find evidence of fraud or misrepresentation in the application. This period typically lasts for the first two years of the policy and helps protect the insurance company from fraudulent claims. If a policy lapses and is then reinstated, or if a new policy is issued, the period of contestability restarts.
| Characteristics | Values |
|---|---|
| Duration | Usually two years |
| Applicability | All life insurance policies |
| Function | Allows the insurer to investigate the application for incorrect information |
| Outcome | Insurer can deny a death claim if they find evidence of fraud or misrepresentation |
| Exception | Incontestability clause |
What You'll Learn
The contestability period
During the contestability period, the insurance company can investigate the application for fraud and intentional misrepresentation. If the insurer finds evidence of fraud or misrepresentation, they can deny or reduce the death benefit paid to the beneficiaries. The most common reasons for an insurance company to dispute a claim during the contestability period are suicide or misrepresentation of the health of the insured person.
For example, if someone claims to be a non-smoker during the application process but passes away from smoking-related lung cancer within the first two years of their policy, the insurance company can investigate and may deny the death benefit to the beneficiaries.
It is important to note that insurance companies can investigate any claim at any time if there are signs of fraud. Therefore, it is crucial to be completely honest when applying for life insurance. 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.
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The incontestability clause
Today, when someone purchases life insurance, the clock starts running on the contestability period. If, after two years, the insurance company hasn't found an error in the application, benefits are assured. Even within that period, it's not easy for the company to rescind a life insurance policy. Under most state laws, the insurance company will have to file a suit in court to nullify the contract. Sending a notice to the policyholder is not enough.
However, there are some exceptions to the incontestability clause. In most states, if the insured person misstates their age or gender when applying for life insurance, the insurance company may not void the policy but can adjust the death benefits to reflect the policyholder's true age. Some states allow insurance companies to include a provision stating that the contestability period must be completed within the lifetime of the insured. This means that the insurance company can refuse to pay benefits if the policyholder was so unwell when they applied for coverage that they died before the contestability period was over. Some states also allow the insurance company to void a policy if deliberate fraud is proven.
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The suicide clause
The length of the exclusion period varies by state in the US. While most states have a two-year exclusion period, some states like Colorado, Missouri, and North Dakota have shorter periods, allowing beneficiaries to claim death benefits after one year.
It is important to note that group life insurance and life insurance for military personnel usually do not have a suicide clause, meaning they can pay out for suicidal death regardless of the policy's duration.
If you or someone you know is struggling with mental health issues or having suicidal thoughts, it is crucial to seek help. Resources such as the National Suicide Prevention Lifeline (1-800-273-8255) or local crisis support services are available to provide confidential support and assistance.
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The period of contestability
The purpose of the contestability period is to protect insurance companies from financial losses due to fraudulent claims. Life insurance premiums are typically based on the buyer's age and medical history, so some people may intentionally misrepresent certain aspects of their health and lifestyle to obtain better rates or approval for coverage. The contestability period gives insurance companies the opportunity to investigate and deny claims if they find significant inaccuracies in the application.
If the insurance company discovers material misrepresentation during the contestability period, it has several options for recourse. If the misrepresentation would have led to higher premiums, they may choose to pay the death benefit minus the additional premiums that would have been charged. On the other hand, if the insured purposefully omitted critical information that would have resulted in a denial of coverage, the insurer may deny the claim and return the premiums to the beneficiaries.
It is important to note that not all claim denials are final. Even if the insured provided inaccurate information, legal advice should be sought as there may still be a chance to collect death benefits. Additionally, if the policy includes an incontestability clause, the insurance company may be prevented from investigating claims made after the contestability period, guaranteeing that beneficiaries will receive the payout.
Overall, the period of contestability is designed to protect insurance companies from fraud and ensure that policyholders provide honest and accurate information on their applications. While it may cause delays in claim payouts, it helps maintain the integrity of the insurance system and protects all parties involved.
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The insurance company's right to investigate
The insurance company has the right to investigate claims to protect itself against fraud and to properly assess the claim. According to the Insurance Information Institute, more than 15% of all auto claims payments made in 2012 were the result of fraudulent claims. Thus, insurance companies will ask insureds and third-party claimants to provide evidence supporting their claim and will send adjusters or investigators to gather their own evidence.
The Insurance Claims Investigation Process
The insurance claims investigation process involves examining the details of the claim to determine its authenticity and legitimacy. The process typically involves:
- Interviewing the claimant and witnesses
- Gathering physical evidence from the accident scene
- Acquiring documentary evidence such as police and medical reports
- Monitoring the claimant online and offline
- Obtaining other contextual information such as the claimant's social media activity and insurance history
The Insurance Company's Obligations
While insurance companies have the right to investigate claims, they must also comply with their obligations to act in good faith and with due diligence. They cannot use the investigation as a ploy to evade their responsibilities under the insurance agreement. If an insurance company takes unreasonable investigative steps with the underlying motive of denying legitimate claims, it can be alleged that they have violated their duty to the insured and are liable for bad faith.
The Insured's Obligations
The insured also has certain obligations during the investigation process. They should cooperate with the insurer's reasonable requests for information and comply with the policy's reporting requirements and proof of loss. Additionally, the insured should mitigate damages if possible by taking steps to prevent further property damage or interruption of business operations.
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Frequently asked questions
The contestability period is a clause in a life insurance policy that allows the insurance company to investigate a death claim filed within the first two years of the policy's activation. The insurance company can deny the claim if they find evidence of fraud or misrepresentation in the application.
If an insurance company contests a life insurance claim, they will deny or reduce the death benefit paid out to the beneficiaries. They will also provide a detailed explanation for why the claim was contested.
Typically, an insurance company will not investigate claims after the contestability period ends. However, they reserve the right to cancel a policy or deny a claim at any time if fraud is discovered on the application.
The contestability period lasts for two years. If you get a new policy or reinstate a lapsed policy, the two-year period restarts.
The suicide clause is a separate part of a life insurance policy. It gives the insurance company the ability to reject a beneficiary's claim if the cause of death was self-harm and the policy began less than two to three years ago.
