Last Updated: July 2020
You may have heard before that if you purchase life insurance and die within a two-year period of the policy being opened, that the life insurance company can decline to pay your beneficiaries. This is completely true and is known as the Two Year Contestability Period.
The rest of this brief article will break down what you need to understand about the 2-year contestability period:
- What is the Life Insurance Contestability Period?
- Examples of When the Life Insurance Companies Use the Contestability Period
- Life Insurance Companies Will Not Pay the Benefit for Suicide
- The 2 Year Contestability Period Rarely Needs To Be A Concern
Life Insurance is Boring. Let’s Get To The Root Of It! Here are the key takeaways…
The two-year contestability period is designed to protect the life insurance company against “material misrepresentations”. It is designed to allow the life insurance company a two-year initial period when the life insurance policy begins to deny the death claim if anything was purposefully misrepresented during the application process.
What is the Life Insurance Contestability Period?
This is a form of “insurance” for the insurance companies, so they can make sure you didn’t make any misrepresentations on your initial application. Basically, they are checking for incorrect information or lies that would have affected their underwriting and decision to approve you for the life insurance policy.
The company can decline the death benefit payout within the first 2 years if they deem the misrepresentation to be “material”.
What this means is, if you withheld any information from the life insurance company at the time of the application, and it would have affected the outcome of the health classification or even offering coverage at all, they can deny your claim.
New Rules Regarding the Two Year Contestability Period
Some life insurance carriers have a new policy for the contestability period. If you let your life insurance policy lapse and then reinstate it, or make amendments to your policy, the two year contestability period could start over again from that date.
If you have let your life insurance policy lapse, or have planned on making changes to your policy, it would be wise of you to consult with your life insurance company to see what their policy is on this.
If you tell the truth on the life insurance application, you don’t have to worry about the two year contestability period.
The worst-case scenario, if something happens to you within the first two years, is it might just take a few extra weeks to receive your death benefit while they investigate the cause of death and see if you misrepresented anything.
If it’s past the 2 year contestability period, we see payouts within a few days to 1 week after submitting claim forms.
How Often Do Companies Use the Contestability Period to Not Pay a Claim?
The good thing for most people is, this is rarely an issue because most underwriters are very thorough before approving someone for a policy.
It is unusual for companies to miss a medical condition or something else during the underwriting process that might affect your health class or your chance for approval.
That said, it does happen, so it’s important that you never lie or withhold information during the life insurance application process.
Examples of When the Life Insurance Companies Use the Contestability Period
Let’s say that while going through the underwriting process, you weren’t completely honest about certain things regarding your health.
Lying About Unhealthy Habits or Risky Hobbies
People searching for life insurance for smokers might lie about their tobacco use. Others might not include their risky hobbies or occupation like SCUBA diving.
If you managed to slip through the cracks and get approved, and then die within two years of your application, this would be considered fraud on your part, and the insurance company would not be required to pay you.
This usually requires an investigation after your death, but would usually only happen if your death gave them a reason to believe you had lied or didn’t disclose something about your medical history.
Not Reporting a Medical Operation in a Foreign Country
Another example is if you had an operation or some sort of serious health problem in a foreign country, which wasn’t well reported.
If it was then found out after your death, within two years of your application, the insurance company would not be liable to make any payments for your death benefit to your beneficiary.
Life Insurance Companies Will Not Pay the Benefit for Suicide
Suicide is another example. If you committed suicide within two years of your policy beginning, your beneficiaries will not receive any death benefits.
Typically, the life insurance company will refund any premiums you’ve paid so far.
After two years though, your policy is considered to be incontestable.
No matter the circumstances, even if you’ve committed suicide, if it has been over two years since you took out the policy, the insurance carrier will be liable to pay your death benefit.
While we definitely aren’t recommending that anyone lie and cross their fingers that they make it another two years, it is always good to understand the timeframes for the contestability period.
The 2 Year Contestability Period Rarely Needs To Be A Concern
The two year contestability period causes some people to decline coverage or look for another plan.
Know that it doesn’t affect 99.9% of people, and should not be an issue for you provided that you are honest.
If you have medical complications that make finding life insurance difficult, you can likely still find a policy. We can help you compare affordable high-risk life insurance policies.
Call us today!
What if your 10 year term life insurance expires and you start a new 10 year policy, does a new 2 YEAR CONTESTABILITY PERIOD come into effect?
Yes. A new 2 year contestability period will come into effect.
I’m dying from cancer and I don’t have life insurance, would I be able to get any and will it payout?
Hi Shawn, I’m sorry to read this.
You can get guaranteed issue life insurance and it will pay out entirely after 2 years if you can make it that long?
If not, they’ll refund your premium payments plus interest. If there’s a chance you’ll make it 2 years, I’d buy a guaranteed issue policy asap. Worst case scenario your beneficiaries are left with a refund with premiums with interest.
Godspeed.