What is a Contestability Period?
The contestability period is a window of time during which a life insurance provider can investigate an insured after their death to ensure that the information they reported on their application was accurate.
It usually lasts for two years after a policy is purchased and if the insurer finds that the reported information wasn’t accurate, they can deny or reduce coverage for the policy’s beneficiaries.
How contestability periods work
Contestability periods are designed to protect insurance companies from fraud. Basically, they give the insurer a window during which they can fact-check information on anyone they’ve recently insured.
The goal isn’t to penalize people who made accidental mistakes on their life insurance applications. Instead, contestability periods are supposed to protect insurers from having to pay out benefits when someone who intentionally misled them dies.
Here’s how it works: if you die within the contestability period, the examiner assigned to your claim might decide to dig into your case further.
They don’t always investigate individuals who die within the contestability period. Insurance companies are much more likely to look into your claim if you died from an unexpected cause. If you said you didn’t smoke cigarettes but died of lung cancer, for example, that would almost definitely be enough to trigger an investigation.
During the contestability period, the claim examiner can request your medical records and double-check your file with the MIB Group (a database most health and life insurers use to report information about people applying for insurance). If they find that your life insurance application hid pertinent information or included untruths, they can deny your claim — leaving your beneficiaries with nothing.
Contestability period length
Almost all insurance companies extend their contestability period for two years from the date a life insurance policy goes into effect.
Why being honest matters
It might be tempting to omit certain details — like an occasional cigarette or a recent minor health diagnosis — in order to get life insurance rates that are as low as possible. But intentionally hiding information from or giving false information to an insurance company is called material misrepresentation, and it comes with consequences.
Specifically, if you die and your insurer finds that you misled them, they can do one of two things. If the material misrepresentation was serious enough, they can deny the claim altogether, leaving your beneficiaries with nothing.
If your material misrepresentation would have led to them charging you slightly higher premiums, the insurer may still pay out the death benefit minus the difference. They’ll subtract the extra amount you would have paid in premiums had you been honest and pay a proportionate death benefit, leaving your beneficiaries with whatever is leftover.
All told, your beneficiaries get left with the same amount as if you had been truthful, but your beneficiaries then have to deal with the added stress of a claims investigation. And that can be an especially heavy burden as they’re already dealing with losing you.