What Is An Incontestability Clause For A Life Insurance Policy?

By Lisa Olsen Posted in Life Insurance News

An incontestability clause is a special provision written into a life insurance policy. It can prevent the insurance provider from canceling coverage because of a accidental misstatement or misinformation given by the policy holder, after a certain period of time. This does not, however, give a policy holder license to commit fraud. This simply protects the policy holder from accidental mistakes in their policy.

Why Is It Needed

No one should ever forget that while they provide a valuable service insurance companies are in the business of making money or at least trying to keep it. This being said, the incontestability clause is in place to protect the consumer from erroneous cancellations of their policies. Not that they would but it would be very easy for an insurance company to jump on a typographical error to cancel a policy.

This protection usually doesn’t kick in until after the first year or two. Before that an insurance company could cancel your policy without much notice but not without reason. Most states require incontestability clauses in health and life insurance policies to protect the consumer’s interests.

Sneaky Facts

One little known caveat of incontestability clauses is that they also limit the period in which  a disability can be claimed. If a policy holder files a disability claim before the period has expired then the insurance company has the right to cancel the incontestability clause. One way to remedy this is to wait and file the disability claim after the incontestability clause has taken affect.

In general this clause is a good idea for both consumers and insurance companies. It gives them both a level of protection on each end. It prevents a policy holder from committing fraud or withholding information that would affect the policy. But it also prevents the insurance companies from canceling a policy for small errors made by the policy holder at the time the policy was purchased.

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  4. What Is A Reinstatement Clause For Low Cost Life Insurance?
  5. What Is A Limited Pay Life Insurance Policy?

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