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What Is An Incontestable Clause For Low Cost Life Insurance?

By Lisa Olsen Posted in Life Insurance News

No one buys life insurance expecting to die with a short time. The insurance company expects to earn money from the premiums and the insured plans to live to old age. The policy is purchased in case something happens and the family needs money to meet the financial obligations involved.

Definition Of An Incontestable Clause

An incontestable clause defines the amount of time an insurance company can dispute paying benefits on the policy. This period is typically two years from the date the policy is issued.

If the insured dies within this period the insurance company can dispute the claim. The company can claim the policy was fraudulent, thus leaving the heirs to prove the policy was valid and the insured’s death was covered. For example, a man with a wife and two children buys a life insurance policy. Two months later he dies of “undetermined causes.” The insurance company can initially deny the claim saying the policy was purchased to cover a suicide. It is then up to the grieving family to prove the death was not.

If the insured dies several years after this period there may be no legitimate reason for the insurance company to contest the policy. The insurance company is obligated to pay the insurance amount immediately to the heirs. If they then want to contest the policy the uphill battle belongs to the company.

Any contest to the policy being paid must be proven according to the laws of the state and insurance industry. An insurance company cannot arbitrarily label a policy a fraud and refuse to pay. If the policy denial is proven fraudulent, then family may have legal recourse in court for damages.

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