by John Darer® CLU ChFC CeFT® MSSC RSP CLTC
During the life insurance contestability period your life insurance company can cancel the coverage and return the premium if it discovers that information supplied by you (and/or the policy holder if you don't own the policy) on the insured application, or during the application process to qualify for the insurance, contains material misstatements. The general contestable period is usually the one or two years, depending on the company.
What is the Purpose of the Constestability Clause in a Life Insurance Contract?
The purpose of the contestability clause in your life insurance contract is that it provides the life insurance company a reasonable opportunity, during this limited period, to protect itself from people obtaining insurance that would not have qualified for it if they gave truthful information on their life insurance application.
Contestable Clauses in Life Insurance Policies You Should Be Aware Of
Most life insurance policies have a suicide exclusion that specifically limits insurance company liability to a refund of premiums if the suicide occurs within a certain period of time. In some states it is one year and other states, like California it is two years. The reason is obvious.
Many contracts also have a clause regarding misstatement of age and gender. Depending on contract language, claim amounts may be adjusted based on the insured person's true age and gender. Other insurers may take a harder line and only permit a return of premium.
Misstatement of smoking status is mentioned as fraud in many life insurance contracts
As tempting as it may be for smokers when they see the how consuming tobacco or weed affects cost, don't even think about lying about smoking.Coverage is immediately voided with no claim payable. The insurer may only refund premiums paid after the date tobacco-use misrepresentation is discovered. There is plenty of case law out there to support the insurers. You are buying life insurance to protect against unacceptable consequences to your family in the event of your death. Don't screw it up!
If your incur a loss during the contestable period expect a contestable review but don't panic, unless you've been untruthful.
Useful Resources
The Misrepresentation Defense in Life and Disability Insurance Cases: The Issue of Causation by C. Edward Sentell
Northwestern Mutual Life Insurance Company v Gil 2009 WL 276086 (Conn. 2009). Insured died in homicide, but had misstated about medical history when application was taken. NML refused to pay $15,000,000!
Contacts for State Insurance Departments can be found at the website of the National Association of Insurance Commissioners
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