Every ordinary life insurance policy (term, universal life and whole life) that is approved and issued today contains a “contestable clause” that is in effect for a full two year period from the policy date. The contestable clause is designed to protect all life insurance companies from fraud and misrepresentation and permits the insurance company to investigate any and all death claims that are made within the first two policy years.
At MEG Financial, we have paid 30+ claims over the years and several of these claims were filed during the contestable period. When a death occurs within the first two policy years, it is automatic for the life insurance company to investigate the legitimacy of the claim.
The investigative process for a policy falling within the contestable period is similar to the underwriting process at the time of the application. The death certificate is required as well as the death claim form (routine for all claims). In most cases, all pertinent medical records are ordered from any physician that provided treatment to the insured. The records are then reviewed and cross referenced with the information provided on the original application and insurance exam. During this evaluation, the insurance company is looking for any material misrepresentation or omission or outright fraud that would have affected the original underwriting approval.
If it is determined that fraud or misrepresentation has been committed during the initial application process, the life insurance company has a legitimate right to deny the claim. If a claim is denied, all premiums are returned and the life insurance coverage is considered null and void.
As previously mentioned, at MEG Financial, we have had several death claims that were filed within the contestable period. In each case, a complete investigation was undertaken by the insurance company (average time was about 30-40 days). In each case, there was no fraud or misrepresentation identified and the tax free death benefit was paid to the named beneficiary.
When applying for life insurance, be aware of the two year “contestable period” and make sure that all pertinent information regarding your health, personal background any other significant details are disclosed.
As a final note, at the end of the first two policy years, life insurance policies are considered “incontestable” and death claims are generally paid within two weeks of proof of death and a valid death claim form.