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The life insurance 'contestability period': 7 things to know





The life insurance contestability period is a short window in which insurance companies can investigate and deny claims.

The period is two years in most states and one year in others, and it begins as soon as a policy goes into effect.

If you die within the contestability period, the life insurance company can investigate whether you gave accurate information on your life insurance application. The company can deny paying the death benefit if you lied -- even if the cause of death has nothing to do with misrepresentation on your application.

The contestability of life insurance policies became an issue in the mid-19 th century, says Stephen Rothschild, chair and executive committee member of the LIFE Foundation, an industry group that educates consumers about life, health and disability insurance. States passed laws to prevent life insurance companies from refusing to pay benefits just because customers made mistakes on their applications. Life insurers then included clauses in their policies saying they could not contest claims except during the contestable period.

"Insurers have to go after these cases when there's fraud or more people would try [to cheat], and prices would increase for everyone," Rothschild says.

Here are seven things to know about the contestability period.

1. You put your loved ones at risk if you lie on your life insurance application.

Don't lie or withhold information to get lower rates, betting you'll live through the contestability period, says Keith Friedman, principal of FBO Strategies, an estate and insurance firm in Stamford, Conn.

"My advice is to be honest and don't make it difficult for your family," he says.

2. The insurance company still has to honor the contract if you die during the contestability period.

Life insurance companies can investigate the claim during the contestability period to make sure the underwriting decision was based on accurate information. But it still has to pay the death benefit if everything is in order. The insurer has to pay up even if you die an hour after the life insurance policy goes into effect.

3. The life insurance company could pay the claim even if you got some facts wrong.

If an investigation finds you misrepresented facts on your application, the insurer has a couple of options.

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