When you buy life insurance, the insurer agrees to pay your beneficiary a lump sum if you die while the policy is active. But if you die during the first two years of the policy, the insurer has the right to investigate your application for fraud and misrepresentation before they pay out. This is called the contestability period.
During the period of contestability, the life insurance company can be exempt from paying out the death benefit if it finds intentional misrepresentations in your application. For example, if you purposefully concealed a depression diagnosis, the company could deny or reduce the amount your beneficiary receives.
What is the life insurance contestability period?
The period of contestability is a clause included in all life insurance policies that allows the insurer to review your application for incorrect information. It usually lasts for two years after the policy begins.
The contestability period helps protect the life insurance company from fraud — statistically speaking, it’s very unlikely that you die during the first two years of a life insurance policy. It helps the insurer to confirm you didn’t withhold or lie about any health or lifestyle-related information during the application process.
The misrepresentations don’t have to be related to your cause of death. For example, if you die in a car accident but also failed to disclose a history of drug or alcohol abuse, the life insurance company can deny your death claim.
The best way to ensure that your beneficiaries are taken care of in the event of your death is to be honest and forthcoming on your life insurance application. That way, the insurer won’t have any concerns during the contestability period.
What happens if you lie on a life insurance application?
If you’re purposefully dishonest, for example, about your health, the insurance company usually finds out. During underwriting — the process during which the insurer reviews the information you shared on your application to assess your risk and determine the cost of your policy — most people take a medical exam, which includes routine blood and urine testing, which can reveal any inconsistencies about your health.
The insurance company also compares your statements against a report from the Medical Information Bureau (MIB), which compiles information like previous surgeries and medical diagnoses using other insurance applications you’ve completed.
If the insurer discovers that you lied, that will go on your MIB report too, which could cause other insurers to deny you coverage in the future. Any insurance company that would have approved you if you had been honest about something from your past (for example, a medical diagnosis or your criminal history), will decline your application if it finds out you’ve been intentionally dishonest.
If you made a simple mistake on your application, like forgetting to name a prescription, don’t worry. There are opportunities to correct unintentional errors. Contact your insurance agent and they will be able to help you update your information.
The contestability period exists to penalize people who hid or lied about critical information that helped them to take advantage of lower premiums meant for less risky applicants. It’s not meant to provide loopholes for insurers to avoid offering the financial protection they agreed to provide if you pass away.
What is the incontestability clause?
In some extreme circumstances, the insurance company withholds or reduces the death benefit if it discovers fraud in your application even after the contestability period has expired. This is rare and usually only happens in cases of blatant fraud.
However, there are policies that combat this chance by including an incontestability clause. This clause prevents insurers from investigating claims made after the contestability period — which guarantees that your beneficiaries will receive the payout if you die two years after the policy went into effect.
If you have an incontestability clause, it will be clearly listed in your policy documents. Read your policy thoroughly or ask your insurer for help if you’re unsure whether you have this protection.
What happens if my policy lapses?
If you fall behind on your premiums, your policy will eventually lapse, becoming inactive. You’ll have to re-apply for life insurance through a new policy to regain coverage.
You’ll pay higher premiums based on your older age and you’ll go through the underwriting process again. You’ll also start a new contestability period.
This means 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 just as they would the first time around.
Is the suicide clause different from the contestability period?
Most life insurance policies also include a suicide clause. While the suicide clause overlaps with the contestability period, it’s a separate part of your policy.
The suicide clause gives the company the ability to reject your beneficiary’s claim if the cause of death was self-harm and you died within the first two to three years after the policy became active — the exact period will be stated in your policy. Suicide clauses exist to deter someone from buying a policy with the intention of harming themselves and leaving money to their beneficiaries.
If you die by suicide after the suicide clause has expired, your insurer will pay the death benefit. As with the contestability period, the suicide clause period resets if you get a new policy.
If you or someone you know is in crisis, you can reach the National Suicide Prevention Lifeline by calling or texting 988. The service is free and available 24 hours a day, seven days a week. The deaf and hard of hearing can contact the Lifeline via TTY by using your preferred relay service or dialing 711 then 988. All calls are confidential.
