When you purchase a life or disability insurance policy, your policy will automatically have a clause called the period of incontestability. This clause causes a lot of confusion. The clause states that if you have a claim in the first two years of the policy, the company has the right to rescind the contract.
Does that mean you are not covered the first two years?!
No! Absolutely not! What it means is that if you have a claim in the first years of the policy, the company will automatically re-underwrite your file to see if there was any fraud involved. If you did not properly disclose something that would have precluded them from covering you, you would not be covered and the policy would be rescinded.
Let’s look at two real life examples:
- I had a client who purchased a disability policy and less than a week later was involved in a terrible automobile accident. Because of the clause, the company went through his file to see if there was any fraud involved. Obviously he did not foresee an upcoming automobile accident when he applied for coverage and his claim was paid.
- I had a client who purchased a disability policy and 4 months later filed a claim related to a pregnancy. When she applied for coverage, she stated on the policy that she was NOT pregnant. When she filed the claim, they were able to determine that she was in fact pregnant at the time of application. Had she disclosed she was pregnant, they would have likely excluded pregnancy. As a result, her claim was NOT paid.
2 Year incontestability also applies to life insurance. If you die within the first 2 years of your policy, the company will re-underwrite your file to ensure that you properly disclosed all of your health history.
For more information about life or disability insurance, the 2 year period of incontestability or to request a quote, contact Set for Life Insurance today!