Life insurance is one of the most important investments that you’ll ever make for your loved ones. It’s one of the only ways that you can ensure that they have the resources that they need, regardless of what happens to you.
You may have heard before that if you insure yourself for life insurance and die within a two-year period of the policy being open, that the insurance company can decline to pay your beneficiaries.
This is completely true, and is known as the Two Year Contestability Period.
This is a form of "insurance" for the insurance companies, so they can make sure you didn’t make any misrepresentations on your initial application.
The only way they will decline making the pay out within the first 2 years, is if they deem the misrepresentation to be “material”. What this means is if you withheld any information from the life insurance company at the time of the application (and it would have effected the outcome of the health classification or even offering coverage at all), they can deny your claim.
The good thing for most people is, this is rarely an issue, because most underwriters are very thorough before approving someone for a policy. It’s important that you understand your life insurance policy and the coverage that you are getting. We know that it can be confusing to find the perfect insurance policy, but we are here to help clear up any confusion and connect you with the perfect coverage.
Examples of Material Misrepresentation in Practice
Let’s say while going through the underwriting process, you weren’t completely honest about certain things regarding your health. Common things that people lie about include being a smoker, or partaking in risky activities like SCUBA diving. If you managed to slip through the cracks and get approved, and then die within two years of your application, this would be considered fraud on your part, and the insurance company would not be required to pay you.
This usually requires an investigation after your death, but would usually only happen if your death gave them reason to believe you had lied or didn’t disclose something about your medical history.
Another example is if you had an operation or some sort of serious health problem in a foreign country, which wasn’t well reported. If it was then found out after your death, within two years of your application, the insurance company would not be liable to make any payments for your death benefit to your beneficiary.
Suicide is another example. If you have committed suicide within two years of your policy beginning, your beneficiaries will not receive any death benefits. The typical route of action, is for them to refund any premiums you’ve paid so far.
After two years though, your policy is considered to be incontestable.
No matter the circumstances, even if you’ve committed suicide, if it has been over two years since you took out the policy, the insurance carrier will be liable to pay your death benefit.
While we definitely aren’t recommending that anyone lie and cross their fingers that they make it another two years, it is always good to understand the timeframes for the contestability period.
New Rules Regarding the Two Year Contestability Period
Some insurance carriers have a new policy, where if you let your life insurance policy lapse and then reinstate it, or make amendments to your policy, the two year contestability period could start over again from that date.
If you have let your life insurance policy lapse, or have planned on making changes to your policy, it would be wise of you to consult with your life insurance company to see what their policy is on this.
If you're telling the truth on your life insurance application you don't have to worry about the two year contestability period.
If you're open and honest on your life insurance application then the worst case scenario if, god forbid, something happen to you within the first two years - is it might just take a few extra weeks to receive your death benefit while they investigate the cause of death and see if you misrepresented anything. If it's passed the 2 year contestability period, we see payouts within a few days to 1 week after submitting claim forms.
Getting Affordable Life Insurance
The two year contestability period is one of the scariest aspects that applicants run into when they are applying for life insurance. It has caused a lot of people to decline coverage or look for another plan. While it will never impact 99.9% of people, it can be a scary thought.
One of the other most common reasons that people turn away life insurance coverage is because of costs. In most cases, a life insurance policy is more affordable than you might think. There are several lifestyle changes that you can make to secure lower premiums from the insurance company and keep more money in your pockets.
The first thing that you should do is eliminate any tobacco that you currently use. If you’re listed as a smoker on your application, you can expect to pay a lot more for your policy. In fact, smokers are going to pay twice as non-smokers for the same amount of life insurance. If you want to get the most affordable plan, you’ll need to kick those bad habits once and for all.
The best way to ensure that you’re getting affordable coverage and not getting sold a plan with ridiculous exceptions or clauses is to work with an independent insurance agent. Unlike a traditional agent, independent agents don’t only work with one single company. Instead, we represent dozens of highly rated companies across the country and we can bring all of the best plans directly to you.
Don’t waste your time calling companies to receive quotes. Our agents can connect you with the best policy in a matter of minutes. We can save you both time and money on your life insurance plan.
If you have any other questions about the contestability period, we have experienced life insurance agents who are standing by and are ready to help.
If you have any questions at all, please don’t hesitate to contact us directly for assistance. Don’t wait any longer to get the life insurance protection that your family deserves. Contact us today and we can get the process started.