Term Life Insurance Articles
The Function Of A Contestable Clause In A Life Insurance Contract
2011-08-11
Under normal circumstances, a life insurance contract will have a contestable clause or, depending on the insurance company, an incontestable clause. These important clauses are often poorly understood, but all life insurance buyers should take the time to understand them. The terms "contestable clause" and "incontestable clause" are sometimes used interchangeably. Both types of clauses work in the same way. Their function is to explain how a life insurance company can legally invalidate a policy. Usually, the contestable clause will contain time limits. The life insurance company must contest the validity of the statements made in a life insurance application during this time period. After the listed time period has expired, the insurance company will no longer be able to invalidate the life insurance contract due to incorrect information.
For example, say that a life insurance policy applicant omits information about his family history. The applicant has two parents who died from a hereditary heart condition but, on the application, the buyer does not disclose this condition. The contestable clause of the buyer's contract might state that the insurer has two years to contest the contract on the grounds of the omission. After two years, the policy holder's contract cannot be canceled due to the omission. However, the policy holder's premiums might still be increased if he misrepresented his age or omitted certain other information from an application.
The purpose of a contestable clause is to protect the rights of the policy holder as without it an insurance company could conceivably look for any minor omission and cancel a policy late in its term or even after the policy holder's death. Contestable clauses may be required by state and federal law as a form of protection for consumers. These clauses also afford some protection to the insurance company, as they explain the legal circumstances in which an insurer could cancel a policy that was issued erroneously due to a misrepresentation or omission on the part of the buyer.
A contestable clause does not give the policy buyer the right to lie on an application and it's not a good idea to do so. Insurance companies will often catch omissions by checking a policy holder's medical history. An omission can lead to coverage cancellation or huge increases in a buyer's policy premiums.
A standard contestable clause is in place for two years, although time periods could vary by insurer and by contract. Understanding the contestable clause of an insurance contract is important, as this clause establishes the rights of a policy holder and has a serious impact on the overall value of a life insurance contrac
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Under normal circumstances, a life insurance contract will have a contestable clause or, depending on the insurance company, an incontestable clause. These important clauses are often poorly understood, but all life insurance buyers should take the time to understand them. The terms "contestable clause" and "incontestable clause" are sometimes used interchangeably. Both types of clauses work in the same way. Their function is to explain how a life insurance company can legally invalidate a policy. Usually, the contestable clause will contain time limits. The life insurance company must contest the validity of the statements made in a life insurance application during this time period. After the listed time period has expired, the insurance company will no longer be able to invalidate the life insurance contract due to incorrect information.
For example, say that a life insurance policy applicant omits information about his family history. The applicant has two parents who died from a hereditary heart condition but, on the application, the buyer does not disclose this condition. The contestable clause of the buyer's contract might state that the insurer has two years to contest the contract on the grounds of the omission. After two years, the policy holder's contract cannot be canceled due to the omission. However, the policy holder's premiums might still be increased if he misrepresented his age or omitted certain other information from an application.
The purpose of a contestable clause is to protect the rights of the policy holder as without it an insurance company could conceivably look for any minor omission and cancel a policy late in its term or even after the policy holder's death. Contestable clauses may be required by state and federal law as a form of protection for consumers. These clauses also afford some protection to the insurance company, as they explain the legal circumstances in which an insurer could cancel a policy that was issued erroneously due to a misrepresentation or omission on the part of the buyer.
A contestable clause does not give the policy buyer the right to lie on an application and it's not a good idea to do so. Insurance companies will often catch omissions by checking a policy holder's medical history. An omission can lead to coverage cancellation or huge increases in a buyer's policy premiums.
A standard contestable clause is in place for two years, although time periods could vary by insurer and by contract. Understanding the contestable clause of an insurance contract is important, as this clause establishes the rights of a policy holder and has a serious impact on the overall value of a life insurance contrac
