What Is a Contestability Period in Life Insurance?
<lingo>In a life insurance policy, the contestability period is a period of time in which the life insurance company has the ability to investigate and deny any claims that occur. They can deny those claims if there is some type of perceived misstatement or error in what the applicant has applied for under the life insurance policy. Most states set very specific rules for the contestability period. It usually spans between one and two years. After that time, the insurance company cannot refute misstatements or errors that are not considered outright deceit.</lingo>
Contestability Period Clearly and Briefly Explained
During the first year or two of a new life insurance policy being issued, the life insurance company has the ability to review the policy and any claims you make during it. This period, called the contestability period, is designed to allow the life insurance company to avoid having to pay out the death benefit of a person who may have already been sick or at a high risk of death when taking out the policy. It is important to note that life insurance companies cannot deny all claims. Unless they can show evidence of a misstatement or deceit, they must pay the claim.
<twitter>In a life insurance policy, the contestability period is a period of time in which the life insurance company has the ability to investigate and deny any claims that occur. They can deny those claims if there is some type of perceived misstatement or error in what the applicant has applied for under the life insurance policy.</twitter>
Let’s say a person dies within the first year of receiving a new life insurance policy. In this situation, the beneficiary is still to receive the funds from the policy. When this happens, the life insurance company is likely to review the incident to determine if the death benefit should be paid or if only a portion of the payment should be made.
The carrier may decide to do this if the applicant withholds important information or otherwise lies about the facts necessary to obtain the life insurance policy. For example, a person may fail to tell the life insurance provider that they had a diagnosed health condition. As a result, the individual may die as a result of that illness. The insurance company will not pay the proceeds of the policy if they determine the applicant lied about the condition by withholding the information.
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