Understand the Life Insurance Contestability Period, so Your Claim Isn't Denied

What is a life insurance contestability period?

The first two years of your life insurance policy are known as the contestability period. If you pass away during this time, your insurance company is legally allowed to investigate your death. Claims that occur during the contestability period are not automatically denied. However, your beneficiaries could receive a smaller payout based on the findings of the investigation.

The life insurance 2-year clause is not designed to limit claim payouts. Rather, it’s a way for insurance companies to identify potential cases of insurance fraud. 

One example is an individual who lies on their application and intentionally takes out a life insurance policy soon before they pass away. If someone were diagnosed with terminal cancer yet subsequently opened a life insurance policy, their insurance provider would be allowed to investigate their sudden death. If the policyholder failed to disclose their cancer diagnosis on the application, the insurer could withhold the death benefit from their beneficiary.

Not all claims are denied within the contestability period

Many claims that occur during the life insurance contestability period are not denied. If you pass away during the first two years of your policy, your beneficiary can still receive the full death benefit. Even if your insurance company decides to investigate the claim, if there is no evidence of fraud, the claim payout will not be affected.

What is considered insurance fraud?

Intentionally providing false or inaccurate information on your application is fraud. Examples of life insurance fraud are:

• Failing to disclose pre-existing conditions
• Lying about your age or weight
• Not disclosing nicotine or drug use

When you submit a life insurance application, it’s important to provide accurate information. Insurance fraud applies to serious lies about your health. For example, if you’re a lifelong smoker and you check the “non-smoker” box on your life insurance application, that is considered fraud. It could put your death benefit at risk if you were to pass away during the contestability period. 

Other reasons life insurance claims are denied

There are lots of reasons life insurance won’t pay out within the first two years of your policy, or even after the contestability period ends. Here are some of the common reasons why life insurance claims are denied:

• Crimes and illegal activities: Life insurance policies usually exclude coverage for deaths that occur as a result of illegal activities, or that happen while committing a crime. 
• High-risk activities: If your death is caused by a risky activity, such as mountaineering, skydiving, SCUBA diving, or race car driving, your life insurance company might withhold the full death benefit from your beneficiary. 
• Suicide: Life insurance policies usually have a suicide clause, which typically applies within the first one to two years of the policy, depending on your state. It gives the insurance company the right to investigate claims of self-inflicted deaths during the first two years of coverage only.

Can a life insurance company deny a claim after two years?

The life insurance contestability clause only applies during the first two years that your policy is in force. But if you’re wondering, “Can a life insurance company refuse to pay after the contestability period?”, the answer is yes.

Life insurance claims can be denied at any time, whether you’ve had the policy for six months or 15 years. If your cause of death is not covered, your insurance company can withhold the death benefit or provide a smaller payout. 

Fortunately, you can often prevent life insurance claims from being denied, both during the contestability period and after. When you apply, make sure to provide accurate information on your application. It’s also a good idea to review your policy details so you understand what is and is not covered. You can also give your beneficiary a copy of the policy details so they know what to expect.

Don’t have life insurance yet? Ethos makes it easy to get a term life or whole life policy at an affordable rate. Check out our website to see what life insurance covers and learn more about policies offered through Ethos. 

When you’re ready to start applying, just answer a few health questions, see your quote, and purchase a policy on the spot— life insurance with no medical exam or waiting period necessary.