How to Avoid a Declined Payout During 2 Year Contestability Period
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Written by
Chris Huntley
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Reviewed by
Rachael Brennan
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UPDATED: Jul 27, 2020
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If you’re the insured on a life insurance policy and die within the first two years of the issue date, the insurance company may have the right to contest or even deny your claim.
Not to worry…
Most of the time, what this means is they’ll investigate to find out if you made any “misrepresentations” on your policy application.
In other words, did you lie?
If the misrepresentation is “material”, meaning that had they known about it at the time of underwriting, they may not have offered you insurance, then in some cases, they can deny the claim.
In this article, we’ll walk you through the exact steps to help you avoid that scenario, and point you in the direction of companies you can trust to pay out your life insurance money.
Table of Contents
How The 2-Year Contestability Clause Works
You may have found this article because a life insurance company is delaying, denying or contesting your claim due to a death inside of the two year contestability period.
If so, we can help!
Example of Material Misrepresentation
I use Google Analytics on my website, and can see that lots of people find my article on life insurance for those who smoke 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 are:
- their medical history,
- their occupation,
- smoking
- drug or alcohol use/abuse
- 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.
However…. “Material Misrepresentation” is subjective, and not easy to prove.
If you’re dealing with a denied payout, get help from my friends at The Center for Insurance Disputes.
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, their liability is usually limited to a refund of premiums.
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.
As you can see….
Suicide is hard to prove, and will usually pay out after the 2 year period.
If you have a loved one who has died from suicide and the insurance carrier is refusing to pay the death benefit, check with my friends at The Center for Insurance Disputes to see if you have any option to fight for a payout.
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Beware of a 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.
And again, if you’ve had a life insurance payout declined for any reason, even if the policy was less than 2 years old, there may be hope.