What is the incontestability clause?
In life insurance, the incontestability clause, or period, is a period of time after which a life insurance policy becomes totally incontestable, even for fraud.
When does this clause go into effect?
In life insurance, a policy will be contestable for the first two years from the date of issue. Thereafter, the policy becomes totally incontestable, even for fraud. You can remember this for your insurance licensing exam: Liers pray for two years, and then they are fully covered.
Remember, though; the insurance company does a thorough job underwriting a life insurance applicant when they first apply for a policy. However, should they miss something, the insurer (insurance company) will have two years to figure out if the applicant made any material misstatements or committed fraud. If the insurer uncovers such actions during the first two years the policy is in force; they can void, or rescind, the policy.
If the insurer uncovers such action after the first two years, they are stuck because the incontestability clause states the policy is incontestable after two years.
How does the incontestability clause apply to health insurance?
In regards to health insurance, the incontestability clause is called the time limit on certain defenses. It states a health insurance policy becomes incontestable after two years. However, health insurance is always contestable for fraud. Fraud is defined as the intent to deceive and is hard to prove. So, you can think of it this way: In health insurance, liers pray forever!
Who does this clause protect?
The incontestability clause protects the insurer (insurance company who issues the policy) for the first two years and the insured (person covered by the policy) thereafter.
How does reinstatement impact the incontestability clause?
In life insurance, if a policy lapses, the policy owner can apply to get their old policy back. This is known as reinstatement. If the insurer reinstates a policy, the incontestability period will start over.
What else can help me prepare to pass my insurance licensing exam on my first attempt?
If you need any help preparing to pass an insurance licensing exam, we have some excellent courses which are primarily video-based. Check out our available courses now:
Insurance Licensing Exam Prep Video Training Courses
Other tips to help you pass your insurance licensing exam on your first attempt:
Insurance Exam Test Taking Tips
Also, check out our definition and question of the day videos on our YouTube channel: