There is probably no more misunderstood part of a life insurance policy than the contestability or incontestability period. This is the two year period beginning with the date the policy goes in force during which a company can review the underwriting and pull additional records to make sure their underwriting decision was correct when you purchased the policy.

This two (in some states one) year period has spun off more than a few urban legends. Probably the most common of those is that there simply isn’t any insurance in force for the first two years. There are policies like that called graded benefit policies. Those are usually some kind of guaranteed issue policy and the company, knowing that they are taking on considerable risk by insuring without an exam and sometimes without health questions, simply don’t pay a death benefit for the first two or three years of the policy. If you had a policy like that and died during the graded benefit period your beneficiaries would receive a refund of all premiums plus interest.

But not so with almost all life insurance policies out there. The benefit is payable upon the death of the insured beginning the day it goes in force, so literally if your policy went in force today and you died tonight of a heart attack, the full benefit would be payable as soon as the company reviews their underwriting. That leads to the second urban misconception that the reason for the contestability period is so insurance companies can figure out a way not to pay the death benefit. My experience is that companies truly do want to pay legitimate claims. Not paying legitimate claims is bad press and none of them want that. Even if it is questionable most companies will come down on the side of the insured. But the law allows them to take a look back and make sure they got it right and whether you’re a big fan of that or not, the companies occasionally find out that the insured committed fraud or at least didn’t tell their health history story as completely as they were asked to. In those cases they shouldn’t have to pay.

I’ve heard from more than one client that instead of being able to contest it, they should do what it takes to find out everything before they approve the policy. If that was economically feasible and timely companies would do it, but to do it up front would take 2-4 months just for record acquisition and the underwriting cost would raise the cost of insurance considerably. When you weigh that against assuming the client is telling the truth and just getting the records that are necessary to confirm the representations made by the client are true, the second avenue is definitely more customer friendly. If you die during the first two years your family will have to wait a while before the claim is approved, but take the example in the last paragraph where a person puts a policy in force and dies later that day. If he had to wait 2 more months for initial underwriting there wouldn’t have been anything in force for a beneficiary to claim, and if he told the truth about his health, the fact that he died of a heart attack literally hours after a policy went in force will hold up to the scrutiny of contestability and will be paid in full.

Which leads to another misconception that contestability only has two final conclusions, the claim is paid or it isn’t. Some times during the contestability review the company will find out, for instance, that the client had only been a non smoker for two years instead of the three years they put on the application. Life insurance companies aren’t likely to look at that kind of a mistake as fraud and the remedy would be to change the underwriting class the policy was approved at to reflect the correct non smoking rate class. If they do that they charge the corrected rate class from the beginning of the policy (which remember has only been in force less than two years), and they deduct that amount from the death benefit. If companies were as mean spirited as people believe them to be, they would call things like that fraud, but they don’t.

And then it gets as fair as it can get. After that two years the company can only contest the claim for non payment of premium. There is no other look back.  Reading from a MetLIfe policy, “The insurance issued under the Policy will not be contestable after it has been in force during the life of the insured for two years from the date of issue, except for nonpayment of premiums”. The sentence stops there. End of subject.

Bottom line. Tell the truth on the application and make all your premium payments and whether your death happens during the contestability period or not won’t make any difference except in the time it takes to pay the claim. If you have any questions or concerns about your life insurance policy and contestability, call or email me directly. Let’s talk.