What is an Incontestability Clause?
One is the insurance clause, in which the insurer agrees to pay on behalf of the insured all the amounts that the insured. Will be legally obligated to pay as damages due to bodily injury, illness or disease, wrongful death or injury to another person’s property.
An Incontestability clause is a protection for life insurance policies in which a life insurance company cannot deny a claim. Regardless of any false claim or omission of the insured.
What is an Incontestability Clause?
In general, the incontestability clause takes effect after a life insurance policy has been in force for two years. This two-year period is known as the “dispute period.”
The only exception to this clause is an erroneous declaration of age or gender.
The period of verifiability of 2 years.
The two-year dispute period begins from when the carrier first put the policy into effect. If you die in the first two years of the policy and the carrier has valid reasons to contest the validity of the policy. The company may choose to waive payment of the death benefit and file a claim against the insured for some type of fraud.
You should know that the 2-year dispute period is independent of the life insurance suicide exclusion period.
Why Allow a 2 Year Dispute Period?
When the subject of life insurance challenge arises, the first question is usually, “Why? Why can companies challenge the claim when they have already accepted the application and the policy is in effect?”
To be fair, this is a good question, but you should also look at the situation from the insurance company’s perspective.
Unfortunately, there are some people who lie on their application forms to get cheaper life insurance or a better policy. Misrepresentations are generally for initial life insurance quotes only, as carriers generally present anything that the applicant did not disclose.
Senior Life Insurance Quotes
And, of course, there are others who make genuine mistakes, too. But in any case, the challenge period protects the company from having to pay for a policy that shouldn’t have been valid in the first place.
Generally, the insurance company will work on a case-by-case basis. If they have evidence to suggest that some information is incorrect, this is likely to trigger an investigation.
Defining an Incontestability Clause
In other scenarios, the way the policyholder died may also cause suspicion. If the insured dies of heart disease within six months of creating a policy in which he declared good health. This will be a red flag for the company.
With this nuance, the insurer can contest a claim for benefits after the dispute period has expired if the insured dies before the end of that period.
This protects insurers from providing benefits to someone who was already so ill. At the start of the policy that they died less than two years later. It means that the insurer can challenge the flow of insurance benefits to the heirs of the insured.
Five things you should know about the dispute period.
The dispute period can be confusing: these are the main points namely:
Lying in your application has consequences
- When applying for health insurance, be honest about everything from your health and medical history to your hobbies and lifestyle. If you lie, you are putting your beneficiaries’ payment at risk. Remember, the challenge period is there to make sure your request is accurate and so insurers can appeal if it is not. If you are honest, you have nothing to worry about.
- The insurer has to pay the death benefit if everything goes well
Life insurance companies have the right to investigate the claim if it dies during the dispute period. But if they find nothing, they have to pay their beneficiaries the death benefit.
- Your insurer can also take legal action while you are alive. Your insurance company can take legal action while you are alive. And charge you for insurance fraud at a later date. And if he’s alive and the company finds out that he lied on his application during the dispute period. They can cancel his policy.
- An expired policy could restart the dispute period
If you don’t pay your premiums and your policy expires, your insurer may allow you to reinstate your policy. But the clock will reset in its dispute period, which means that your insurer. Will have a two-year window to review your application and change the death benefit. And if you die within those two years, they can delay payment to your beneficiaries while they investigate.
- The dispute period is different from the suicide clause.
Most life insurance policies have a suicide clause, and while it has a time period similar to the dispute period. It is discussed separately. Under the clause, insurers will not pay the death benefit and will return premiums paid to beneficiaries. If the policyholder commits suicide within the first two years of purchasing a policy. If the policyholder commits suicide after two years, the insurer will pay the death benefit.
Incontestability Fraud Clause
At Paul Revere Life Insurance Co. vs. Haas, 137 NJ 190, 644 A.1098 (1994), the Paul Revere Company filed an action against Gilbert K. When it discovered that Haas had made false statements in his insurance application.
He received a policy on March 5, 1987, and on December 1, 1990 filed a claim. For disability payments related to progressive eye disease. The company sought to rescind the policy or secure a DECLARATORY Judgment of the court that the policy. Did not cover Haas’ disease.
Finally, some incontestability clauses contain a FRAUD exception. Such a clause could read: “After two years from the date of issuance of this policy. Only fraudulent false statements made by the applicant can be used to void the policy or deny a claim that begins after the expiration of the two-year period. years”.
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