This article will provide an overview of what an incontestability clause is in life insurance and how it can protect the insurer and insured from future legal challenges. If you are looking for a life insurance plan, know what this clause covers and how it can affect your coverage in detail.
What is the Incontestability Clause in Life Insurance?
A life insurance policy is a contract between an individual and an insurer that provides a death benefit to the nominee in the event of death. The person pays premiums, and the insurer agrees to pay a stated sum assured called death benefits.
The incontestability clause is a part of the life insurance policy that states that the insurer cannot contest any claim made by the insured for a certain period. This is a provision in life insurance policies to ensure that the insured is not discouraged from making claims.
The Incontestability clause is used to protect the company from fraud and abuse. Almost all life insurance contracts have a clause of incontestability for a particular period. 3 years. In simple terms, it means that the insurance companies cannot deny the claim in case of a misstatement by the policyholder after a certain period except for cases of fraud.
How does Incontestability Clause work?
The contestability period is a clause in your life insurance policy that stipulates that if an insured person dies within a certain period i.e., two to three years of buying the policy then the insurer has the right to question the claim raised by the nominee/beneficiaries.
In this case, the insurance company is entitled to ask for additional details about the personal information of the person insured if he fails to inform it before. If their details do not match their insurance records, the insurance company has a legal right to ask for verification and this clause allows them to deny or cancel a claim request made 2 to 3 years from the policy's date.
This clause is in place if fraud occurs and will help prevent fraudulent claims from being made before the policy expires. Some companies also have a clause according to which if the insured person commits suicide within a certain period from the policy issuance date the nominee/beneficiaries cannot claim the death benefit.
Importance of Contestability Period
An insurance policy is an agreement between the insured person and the insurance company. The insurance industry works on trust and proper rules. False information can lead to a life insurance company denying coverage.
There are various ways that false information can be introduced in an application for life insurance. The applicant may not have disclosed their medical history, smoking and drinking habits, etc. The applicant may have misrepresented their age, height, habits, and other relevant factors. This is where the clause of contestability comes into play.
Hiding information can lead to the rejection of a claim. So, It is very important, to be honest, and alert while filling out the application form while purchasing a life insurance policy to save your family from unnecessary hardships.
The major reason behind including this clause in life insurance policy documents is to protect the company against fraudulent claims. It allows the insurer to investigate the customer's medical history and check that it is accurate at the time of purchase. In this way, it not only safeguards the insurers against discrepancies but also gives them a fair chance to question the authenticity of a policy claim.
How an Insured Person Violates the Contract
One of the most common clauses in life insurance policies is the incontestability clause. The incontestability clause can be used by an insurance company to deny a claim. The reason for this is that they may say that the person has changed the terms of their policy and therefore has voided their right to contest any claims. There are various ways in which customers usually violate the contract by lying about their health condition, lifestyle, health habits, drug abuse, and other addictions are considered discrepancies.
For an instance, you have a smoking habit but while buying your life insurance policy you falsely mentioned that you don't smoke. Unfortunately, you die within the 2 to 3 years of purchasing a policy so that the company is allowed to investigate your past to verify that you have given them accurate information. In case they found that you provided false information, the claim raised by the nominee will be denied by the insurance company.
Things to Know About Incontestability Clause in Life Insurance
When purchasing an insurance plan, it's important to note that there's a period when you can contest the coverage. That period is called the contestability period. Here are the main things about the contestability period of your life insurance policy are as follows:
- Any information you provide on your life insurance application can't be changed later on so it's critical that you provide accurate and complete details to get the best deal. You might be tempted to lie about your health, and age for cheaper insurance premiums, but this could prove dangerous. You may think you're just protecting your family, but fraud will likely void any benefits on offer. If you lie on the life insurance application form thinking that you will be able to live through the contestability period, it can lead to denial or cancellation of the policy claim after your death. To make sure that your family will be secure when you are no longer around, double-check everything on the application.
- Even if the insurance company wants to investigate whether or not a claim is legitimate, they will still have to pay death benefits if you can prove that your supplied information is correct.
- If you pass away during the contestability period, your family might have to wait for a long time until the company concludes the investigation and is satisfied with the decision.
Now that you know all about the life insurance contestability clause, make sure to disclose all your habits, and medical information with your insurer when you are buying a life insurance policy.
Life insurance is something most people need at some point in their lives. But before getting a life insurance plan, know all about the incontestable clause to avoid claim rejection. Compare the multiple policies from the different life insurance companies at the PolicyBachat to get the best life insurance policy.
Why You Should Know About the Incontestable Clause?
An incontestable clause is a provision in some insurance policies that allows the insurer to refuse to pay for a claim if the insured person commits an act of fraud. This clause can help you because it would protect your insurance company from fraudulent activity.
How the Incontestable Clause Does Benefit Those Who Need It?
The incontestable clause is an advantage for those who need it because they know their policy will be valid, regardless of what happens to them in the future which means the policy cannot be voided even after a specific time has passed. The clause is a strong protection for the insured.
What are the Advantages of the Incontestable Clause?
The incontestable clause is a provision in an insurance contract that specifies the terms under which the insurer will not contest a claim. The main advantage of this clause is that it provides peace of mind to the insured which means the policy cannot be voided even after a specific time has passed. So that the insured knows that if they make a claim, their insurer will not contest it.
Whom Does Incontestable Clause Protect?
The incontestable clause protects the insurer from any future challenges to the validity of a life insurance policy after it has been issued.
What are the Disadvantages of the Incontestable Clause?
Incontestable clauses are often used by insurance companies to protect themselves against large losses. However, there are some disadvantages to including this clause in a contract. For example, if the insured person dies before the end of the contestability period, their beneficiaries may have to go through an expensive and time-consuming legal process to get their money back. Another disadvantage is that if someone has been treated unfairly by an insurance company, they may be afraid to complain about it because they do not want their policy canceled.