Incontestability Clause for Life and Disability Insurance

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When you apply for life and disability insurance, you are required to go through medical underwriting. This typically involves a paramedical exam (blood and urine test) and questions about your medical history. It is up to the applicant to answer the questions to the best of their knowledge and to fully disclose any medical conditions.

If a life or disability insurance claim occurs in the first 2 years from the initial policy date, the insurance company has the right to contest the claim if they deem there was missing or non disclosed information provided on the application. This is to protect the insurance company from people committing fraud.

For example, if a person applied for a disability policy and didn’t fully disclose they were seeing an oncologist for a lump they found on their body. Since the company didn’t have this knowledge during the underwriting process, they issue the policy. In the first 2 years, the insured files a claim for cancer. The company then re-underwrites the application and finds out that the insured didn’t disclose this pertinent fact. Had the company known there was this pre-existing condition, they would not have issued the policy. Therefore, the claim would be denied.  If the insured filed a claim after 2 years, the claim would have been paid.

In the same example, assume the same person did not have any knowledge of any lumps. They apply for a policy and get approved. Within the first 2 years, the lump becomes larger and a claim ensues. The insurance company would pay this claim as the client didn’t have any knowledge at the time of application and therefore fully disclosed their medical history.

In the case of life insurance, the company may reduce the benefits at the time of claim during the incontestability period if they find out pre existing conditions were not disclosed. For instance, if the insured didn’t disclose family history of heart disease on the application and receives the best possible rates. The insured dies of a heart attack within the first 2 years of the policy date. The insurance company may go back and re underwrite the case. At this time, they may say that had they known about the family history, they would have issued the policy at standard rates. Therefore, they may pay benefits based on the amount paid assuming standard rates which would reduce the death benefit.

When applying for life and disability insurance, it is important to answer the questions on the application to the best of your knowledge. If you fully disclose your medical history and answer the questions accordingly, the 2 year period of incontestability should not be an issue for you.

For more information, please contact the Set for Life Insurance office today!

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