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.
For example, I use Google Analytics on my website, and can see that lots of people find my article on Life Insurance for Marijuana Users by searching “What happens if I don’t disclose pot use on life insurance application?” That’s easy. Other than committing insurance fraud, if you die within two years and the insurance company finds out you lied on the app, they have grounds to contest the claim (not pay the claim).
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 withheld 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. Please take this into consideration when you make any life insurance policy changes, or when replacing an old policy for a new one.
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In the second paragraph your article states “Other than committing insurance fraud, if you die within two years and the insurance company finds out you lied on the app, they have grounds to contest the claim (not pay the claim).”
In the sixth paragraph it states “When he died four years later, even though he had committed fraud, the insurance carrier had to pay out.”
So does insurance fraud apply to the two year no-contest law?
hello Brandon. Thanks for your comment. I’ve heard that some companies will still try to contest a claim after the 2 yr period if they can prove fraud was committed. However, the chances of this happening are very low, since the carrier will typically only investigate a claim thoroughly during the first 2 years. Anyway, the point of the article is to be honest on your insurance application, so that you don’t have to worry about any contestability issues.
So I am correct when I say that the insurance company can deny a claim at anytime for fraud. While you say it’s low its still a legal right of the insurance company?
Here’s how one company’s policy explains their 2 year contestability period:
“After two years from the policy’s effective date, no misstatements in the application will be used to rescind the policy or deny a death claim made after the two-year period. However, we will not pay benefits for any death if fraud.”
So they’d have to prove an incorrect answer on your application was purposely misleading (fraud), rather than a misstatement… very tough to do I would think.
The lesson is, always be 100% truthful on insurance applications and you don’t have to worry about a thing.
Hello,
How long does it take for no possibility of an ING Term Insurance policy reinstatement once a final lapse notice has been sent?
Thank you in advance..
I’m not sure with ING, but many contracts can be reinstated for up to 5 years after lapsing. Keep in mind you’ll have to complete a medical questionnaire and pay back all the premiums you missed. You may also owe interest on the premiums you missed.
My husband died after 6 months of signing with a term policy with ING. The policy was a special one for teachers that asked no medical questions at all. . My husband did have a medical condition at the time of signing up, but was told this was a very unique sign up period wherein the insurance company asks no medical questions.
They sent me a letter saying they will have to investigate because of the contestability period. Is it possible he will be denied?
Margaret,
I’m so sorry for your loss. Unfortunately, without knowing the particulars of the case, I can’t comment on the contestability of the claim. Good luck.
I’ve been delaying buying a term policy due to a nagging distrust of insurance companies. I guess the thing that makes me nervous is that I simply don’t know the answers to many of the health questions. Exactly when did my mother develop heart disease? no idea. How many relatives have died of cancer? no idea. It also doesn’t help that I’ve never been to a doctor (other than vaccines when young), so I have no medical records but could have a cancer or some rare disease right now, who knows? I have absolutely no intention of defrauding anyone, but can’t the insurance company just do this research themselves and offer me a policy based on their research? I feel like they could theoretically contest any little thing and call it fraud because they didn’t find it and I didn’t know about it.
This is a tough one. All I can tell you is that as long as you answer as honestly as possible on the application, there’s almost no chance your policy will be contested. So for example with your mother’s age of onset for heart disease, you answer “approximately age X, but not sure”. As for going to a doctor, this will only be a problem if you’re over 60. If you are, most companies will want you to get a physical done before applying. If under age 60, no problem.
Recently, I got approved 25 yr term life Insurance from ING. Regarding Beneficiary, I put my husband but after 7 years later I am planning to change to my son ( My son is 11 yr old now so when he reached 18 yr old , I want to change the beneficiary from my husband to him).
Here is my question, if I make this amendment regarding change beneficiary, two year contestability period might start over again from that date ? Please advise me.
Thank you.
I don’t believe changing the beneficiary starts a new 2 year contestability period, but you’ll want to double check with ING.
When an insurance company investigates a death during the first 2 years of the policy, is there a law or statute or industry practice of how long they can take to investigate? How long can they drag their feet and/or how long does it usually last if there’s no rule in place? thanks in advance.
Hello Louis,
Sorry. I don’t know, but I imagine it varies state to state. I’ve heard of some claims lasting 7 years in the case of missing persons, where you can’t get a death certificate until 7 years from the date gone missing. Let me know if you find out the answer to your question. I’m just an agent… have never worked in claims before.