If you have life insurance, you might have heard about something called a contestability period. (If you don’t have life insurance, we can help you get started with that.)
So what is a contestability period? In short, it’s a period of time after you get a life insurance policy when, if you die, an insurer might investigate the circumstances of your death.
Why your insurer might investigate a death, and what the results of that investigation might mean, requires a bit more explanation. Read on to learn more details of what a contestability period is, and why it matters.
What is a contestability period?
The contestability period is a period of time (generally two years) after a life insurance policy begins coverage when the policy issuer can contest a beneficiary’s claim. This period exists to prevent life insurance fraud. For example, someone might try to purchase a life insurance policy after being given a terminal medical diagnosis without disclosing the truth to the insurer.
While this period protects the policy issuer from fraud, it isn’t designed to keep the beneficiaries of honest policyholders from receiving their benefits. That’s why, to be clear, the contestability period is not a period of time when an insurer can deny any and all claims.
Even if you die within the contestability period of your life insurance policy, it doesn’t necessarily mean that your beneficiaries won’t receive the payment. It might be delayed while the investigation is ongoing. If the provider finds something that makes it question the validity of your application, it still might make the payout after accounting for any discrepancies.
One important point is that, as with most things in life, honesty is the best policy when you’re trying to get life insurance coverage. If you lie on your life insurance application — about your health, about whether you smoke, or anything else — you risk the non-issuance of the policy, or the non-payment of the death benefit to your loved ones.
How does the contestability period work?
If your beneficiary makes a life insurance claim within the contestability period, the insurance provider can open an investigation. The provider will go through your medical records, look over a copy of your death certificate, and any other pertinent information, and make a decision based on what they find.
In most states, the investigation process must be completed within 30 days. Once the decision is made, the provider will notify the beneficiary with an approval or denial.
Here are a few things that might come out of the investigation:
No death benefit
Brass tacks, this is the big concern: If the insurer determines that you have lied on your application, especially about something significant, your coverage might be jeopardized. Suffice it to say that you buy life insurance for the peace of mind that comes from knowing your loved ones are financially protected in the case the worst should happen to you.
Obtaining that peace of mind through fraudulent means is hardly peace of mind at all.
A reduced death benefit
If you misled your insurance provider on your application, your beneficiary’s life insurance claim might not be denied outright, but it can still be significantly affected.
For example, if you were a smoker but claimed you were not, and then you died of lung cancer during the contestability period, then the claim can be denied. When the claim is denied all of the premiums that have been paid are refunded to the beneficiary..
Translation: Your loved ones will get less money than expected, because you underpaid for your coverage.
What about suicide?
Another reason for the contestability clause is the possibility that someone will buy life insurance with the intention of committing suicide. This is obviously a tragic situation, and an insurer does not want to incentivize people having suicidal thoughts.
Suffice it to say this is a difficult situation for all involved. If an insured person commits suicide during the two-year contestability period, the insurer almost certainly will not pay out the death benefit. Instead, the beneficiaries will be refunded the premiums that have been paid, and it will be as if the policy was never taken out. (After the contestability period, it might depend on your insurer.)
One other thing: If you’re having thoughts of suicide, you can call the National Suicide Prevention Lifeline at 1-800-273-8255 (TALK).)
How long does the period of contestability last?
Again, the contestability period generally lasts two years and begins when you make your first payment. So, if you were approved for life insurance coverage on August 15 and made your first premium payment on September 1, your contestability period starts on September 1.
It’s important to know that your policy can lapse during the contestability period if you fall behind on your premiums. If this happens, you’ll have to reapply for life insurance, and your contestability period starts over if you are approved.
Can a claim pay out during the contestability period?
Yes. If you die during the contestability period and your beneficiary files a claim, the insurance provider is obligated to pay out the benefit unless it finds you withheld information or lied about something on your application. The provider has 30 days to reach a decision and notify your beneficiary during this period.
Let’s be honest: We at Haven Life want to make life insurance simple and easy for you and your loved ones. Getting term life insurance at an affordable rate is a great way to take care of your family in case the worst should happen. To get the most peace of mind out of your policy, be truthful and provide accurate information on your application, and the contestability will be one less thing to worry about. Honest.