Incontestability Clause

What is an Incontestability Clause?

An incontestability clause refers to one such clause that is available in a lot of Life Insurance policies, averting the provider from voiding coverage because of any misstatement by the insured once a certain time amount has passed.

A basic incontestability clause talks about a contract that doesn’t stand voided because of a misstatement once three or four years have passed.

Explaining Incontestability Clause

Sure, there is always a possibility of committing errors when applying for insurance. Often, the insurance company needs a complete and untainted medical history before approving the policy. In case the applicant forgets to mention even the smallest detail, the company gets the potential grounds to reject paying the benefits in the future.

Thus, in the late 1800s, this incontestability clause was introduced by reputable Insurance companies with an object to develop consumer trust. By assuring full benefits once the policy has been active for a specific number of years, these companies tried to recreate a positive image of the Industry. Incontestability clauses assist with the required protection to the insured from companies that may try to prevent paying benefits during the time of a claim. While this provision helps offer advantages to the insured, it doesn’t mean protection against a straightforward fraud.

In life insurance policies, the incontestability clause is one substantial protection for a beneficiary or a policyholder. Although there are several other legal rules that may favour insurance companies; this specific regulation is strongly and notably on the consumer’s side.

Basically, there are conventional rules for contracts that signify in case incomplete or false information that been provided by a party while creating the contract; the second party gets the right to cancel or void the agreement.

With the help of the incontestability clause, one can prohibit insurance companies from doing exactly the same.

Common Exceptions to the Clause:

• In most of the states, in case the insured misstates the gender or age, while applying for life insurance, the company might not void the complete policy, but adjust death benefits in a way that it reflects the real age of the policyholder.
• Certain states enable companies to add a provision that states that at least one or two years of contestability period should be completed in the insured person’s lifetime. In such a scenario, the company can reject benefits if the policyholder was unwell while applying for coverage that he passed away even before the contestability period got over.
• Also, some states allow the company to completely void the policy if a deliberate fraud was proven.