If you’re the insured on a life insurance policy and die within the first two years of the issue date, the insurance carrier has the right to contest your claim. Most of the time, what this means is they’ll investigate to find out if you made any misrepresentations on your policy application. If the misrepresenation is “material”, meaning that had they known about it at the time of underwriting, they would not have offered you insurance, then they can deny the claim.
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During the carrier’s investigation, they’ll look for things you concealed from them on the application. Common facts people hide the truth about is their medical history, their occupation, smoking, and hazardous activities such as SCUBA diving or rock climbing. A carrier’s investigation may include requests for medical records, an autopsy report, and a statement from the agent. They may also question the deceased’s friends and family members.
Say you went on vacation to Mexico and had a heart attack and had bypass surgery. When you returned to the U.S., you purchased a U.S. life insurance policy, and did not disclose your medical history in Mexico. If the carrier insures you, and you die within the first two years, they could find out you witheld information from them and deny the claim. That means your beneficiary(ies) don’t get the death benefit.
Suicide: Most life insurance policies also have two year suicide clauses in them, which say the carrier doesn’t pay the death claim if you commit suicide within the first two years. In such a case, thier liability is usually limited to a refund of premiums.
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AFTER TWO YEARS, the policy is said to be “incontestable”. You can die any way want (including suicide), and the insurance carrier still has to pay out. I read about a case recently where a person with HIV successfully purchased a life insurance policy. He was able to do so by lying on the application about his condition, and having a friend show up for the medical exam, giving blood and urine in his place. When he died four years later, even though he had committed fraud, the insurance carrier had to pay out.
Beware of NEW Two Year Contestability Period: If you let your policy lapse and reinstate it, or in some cases when you make a policy amendment, your two year contestability period might start over again from that date.
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