What is a Life Insurance Incontestability Clause?


The incontestability clause protects consumers from the cancellation of a policy due to a mistake or omission during the application process.

One of the greatest fears any consumer has about insurance policies is a company’s failure to pay out in the event of a loss. There are certain consumer protections built into the life insurance policy process that has become part and parcel. These protections sustain throughout the life of the policy so that you won’t be denied when it’s time to cash out.

Without these protections, consumers can’t be sure insurance companies won’t deny their claims for trivial reasons. These coverage assurances have been around since the 19th century, protecting consumers from getting “fleeced” by insurance companies based on financial interest. They even the playing field between consumer and company and are mutually beneficial throughout the life of the relationship.


Incontestability Clause Definition

Incontestability clauses ensure companies cannot deny a claim simply based on inaccurate information provided by the consumer. Fraud is never acceptable, but it’s not difficult to make a mistake on a life insurance medical exam form, or to forget important details during the application process. The process can be very involved for the consumer in some cases, requires collecting different types of information in different ways and involves red tape, so it’s a no brainer that a mistake might happen.

Common errors include forgetting to list an illness or disclose a hospital stay or allergy. An honest mistake on a consumer’s part shouldn’t result in cancellation of a policy – especially when a consumer has paid into that policy for many years.


How long are errors tracked?

With this clause, insurance companies have up to 24 months to find errors in an insured’s application. The insurance company must then file in state court to void the policyholder’s contract, which can also be a lengthy and time-consuming process.

Pending other factors, consumer protections require that life insurance companies guarantee a policy will not be canceled regardless of application errors unless fraud is present after the two-year period. In some states, this period is ONLY a year — therefore, life insurance companies are usually very thorough when going through your application.


Will an Incontestability Clause protect me?

If you are ill when you apply, this clause may not protect you. It’s important to disclose all illness and work with your company honestly. Failure to do so may result in the cancellation of your policy or court proceedings as mentioned above.

If the policyholder passes away, the burden of proof would lie with the family to establish that false information was not reported on the application, sometimes years after the award of policy. This clause makes sense because it’s difficult to defend against an accusation of fraud if the policyholder has passed on.

The incontestability clause is just one consumer protection point put in place to help sustain your policy and protect your benefits. Let’s talk about this clause and others that can help get you the best life insurance plan possible.