Legal Definitions - incontestability clause

Incontestability Clause

An incontestability clause is a standard provision found in many insurance policies, most commonly in life insurance, but sometimes also in accident and sickness policies. This clause is designed to protect policyholders and their beneficiaries from an insurer challenging the validity of a policy after it has been in force for a specific period, typically one or two years.

Once this period has passed, the insurance company generally cannot deny a claim or void the policy based on alleged misrepresentations, errors, or fraud made by the policyholder when they initially applied for the insurance. The primary exceptions to this rule are usually non-payment of premiums or a violation of specific policy conditions, such as those related to military service.

Here are some examples illustrating how an incontestability clause works:

• Example 1: Health Misrepresentation in Life Insurance

  Scenario: Sarah applies for a life insurance policy. To secure a lower premium, she inaccurately states on her application that she has never been treated for high blood pressure, even though she takes medication for it.

  Application of the Clause: Two years later, after the incontestability period has passed, Sarah dies from a cause unrelated to her blood pressure. When her beneficiaries file a claim, the insurance company discovers the misrepresentation about her health history. However, because the incontestability clause is in effect, the insurer cannot deny the death benefit based on Sarah's initial false statement. The policy's validity cannot be challenged after the specified period.

• Example 2: Occupation Misrepresentation in Life Insurance

  Scenario: Mark applies for a life insurance policy and, to avoid higher premiums associated with his actual job, lists his occupation as "administrative assistant" when he is, in fact, a commercial roofer, a profession considered higher risk by insurers.

  Application of the Clause: Three years pass, well beyond the typical incontestability period. Mark then dies in an accident unrelated to his work. During the claims investigation, the insurance company uncovers the discrepancy in his stated occupation. Despite this initial misrepresentation, the incontestability clause prevents the insurer from voiding the policy or denying the claim, as the time limit for disputing the policy's validity has expired.

• Example 3: Income Misrepresentation in Disability Insurance

  Scenario: David applies for a long-term disability insurance policy and exaggerates his annual income on the application to qualify for a larger potential monthly benefit.

  Application of the Clause: After the policy has been active for over two years, surpassing the incontestability period, David suffers a severe injury that leaves him permanently disabled, and he files a claim for benefits. While reviewing the claim, the insurer discovers the original misstatement about his income. Due to the incontestability clause, the insurer cannot deny David's disability claim entirely or void the policy based on this initial misrepresentation. They may adjust the benefit amount to reflect his true income, but they cannot invalidate the policy itself.