Five Things to Know About Your Life Insurance Contestability Period

The contestability period associated with your life insurance policy is a period of time, usually one to two years in length, beginning directly after you purchase your policy, during which your insurer can investigate the information on your application and ultimately approve or deny claims. Understanding some things about this period can help you make better decisions for your loved ones.

#1 – Your Benefits Must Be Paid if You Die During the Contestability Period

A common misconception is that if you die during the first one or two years after having purchased your policy, the insurance company can refuse to provide your loved ones with benefits. This is simply not the case. If you die during the contestability period, your cause of death is covered under the policy, and you provided 100% accurate information on your application, then your loved ones will be entitled to the benefits.

#2 – Providing False Information Hurts Your Loved Ones

Believe it or not, the primary reason why insurance companies fail to pay out benefits when the insured dies within the contestability period is because the insured provided inaccurate or simply untruthful information on his or her application. You should always check and double check your application to make sure that everything is absolutely correct. This way, the insurance company will have nothing to contest upon your death.

#3 – In Some Cases, the Insurance Company will Provide Benefits Anyway

Even if, by some chance, you got a couple of facts wrong on your application, all is not always lost. Due to some recent changes in laws, many insurance companies can essentially ‘correct’ your application after your death, re-calculate your premiums, and deduct any differences from the amount of the benefit that will be paid to your loved ones. In most cases, whether or not this will occur depends upon the size of your claim and the blatancy of the misrepresentation on the application.

#4 – The Contestability Period and the Suicide Clause are Two Separate Things

Another common misconception is that the contestability period and the suicide clause associated with most insurance policies are one and the same, but this isn’t the case. The suicide clause usually states that if the insured commits suicide within two years of the issuance of the policy, no benefits will be paid and all premiums will be returned to the named beneficiary. In most cases, after the two year period, the benefits will be paid in full even if the cause of death is suicide unless the policy specifically states otherwise.

#5 – Contestability Periods can Start Over in Some Cases

Once your initial contestability period is over, you aren’t always out of the woods. There are some cases in which your insurance company can start the period anew. For instance, if you fail to pay a premium on time and are forced to reinstate your policy, then the contestability period can start all over again. Similarly, if you transfer the cash value of your permanent policy into a new policy, this can trigger a new contestability period, as well.

Every insurance company and every policy is different, so it is important for you to check with your agent to determine your contestability period and the payment of benefits in the event of your death during and after this period of time ends.