Incontestability Clause (Insurance Policies: All You Need To Know)

What is an Incontestability Clause?

How do you legally define it?

What are the essential elements you should know!

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What Is An Incontestability Clause

An incontestability clause in life insurance is a contractual provision preventing the insurance provider from voiding the policyholder’s coverage due to misstatements after the passing of a certain period of time.

Typically, after two or three years, the insurance provider will no longer void the policy due to any discovered misstatements. 

The objective of an “incontestability” clause is to provide legal protection to the insured that the provider will not find arguments to escape coverage.

On the other hand, the incontestable clause is not intended to permit the insured from misrepresenting or fraudulently benefiting from policy coverage.

Under nearly all insurance contracts and the law, false statements, misrepresentation, or fraud provide sufficient grounds to void a contract.

The incontestability clause is not intended to change the conventional contract laws and enforceability rules.

Definition 

How do you define an incontestability clause?

The International Risk Management Institute (IRMI) defines the incontestable clause as follows:

History 

Historically, insurance companies did not have a great image as they would use any error against their client to deny them coverage.

For example, in life insurance or any type of health insurance, the insurance company asks dozens, if not hundreds of questions, and a prospective client (in good faith) may forget some details or make a mistake.

Many insurance companies used any errors, incorrect statements, omissions, or wrong statements against the policyholder to deny them coverage.

However, in the late 1800s, reputable insurance companies introduced the incontestability clause to build more confidence with their clients.

They indicated that they would not deny coverage or void a policy if there were errors found or due to omissions after the policy was in place for a certain period of time (like two years or more).

This strategy paid off.

It was a successful strategy within the insurance industry but the legislators and state laws evolved to legally mandate insurance policies to include an incontestable provision.

Incontestability Period

The incontestability period is the period when the insurance provider can no longer “contest” coverage.

On the other hand, the contestability period is the period where the provider has the right to deny coverage or void the policy for wrong statements provided by the insured.

When life insurance is purchased, the contestability period starts.

After the passing of a certain period of time (2 to 3 years), the “contestability” period will lapse and the policy will be “incontestable”.

Exceptions

Are there any exceptions to the application of the incontestable clause life insurance?

In some situations, state laws allow for certain exceptions, namely:

• Age/gender: Wrong declaration of age or gender 
• Time limit: Insured dies shortly after the policy is purchased
• Disability development: Insured develops a disability during the contestability period 
• In case of fraud

In the first instance, if the insured provides wrong and incorrect information about his or her age or gender, the insurance provider has the option of adjusting the death benefits to adequately account for the insured’s age.

However, the law does not necessarily allow the provider to void the policy for an age or gender misstatement.

Another exception is that the contestability period must be completed during the insured’s lifetime. 

In other words, if the insured dies during the contestability period, the life insurance company may have the ability to deny coverage and pay any death benefits.

The insurance provider may also deny coverage should the insured develop a disability during the contestability period.

If a disability is developed during the contestability period, the “incontestability clock” is paused allowing the insurance provider to challenge a potential payout even beyond the expiration of the period.

The last exception, and to no surprise, the insurance company could deny coverage and cancel the policy if the insurance was purchased based on fraud or deliberate misstatements.

Life Insurance

In life insurance, the incontestability clause is important legal protection provided to the policyholder or the policy beneficiary.

In essence, after a certain period of time has passed, the life insurance provider will not deny coverage or void the policy due to alleged wrong statements made by the insured.

This particular contractual provision or “rule” is intended to favor and protect policyholders, consumers, clients, and beneficiaries. 

Even in cases where there may have been some errors, mistakes, or omissions, the insurance company provider will have an obligation to pay the beneficiaries after the contestability period has been completed.

Incontestability Clause Takeaways 

So what is the legal definition of the Incontestability Clause?

Let’s look at a summary of our findings.

Incontestable Clause

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