An incontestable clause is simply one of the provisions in a life insurance policy that states that after a certain period of time, most often two years, the insurance company will have to pay the beneficiary the stated amount of benefits and will not be able to contest it. Another way of looking at this is that the insurance company has up to the stated amount of time to discover any misrepresentations or fraudulent claims. If they are remiss in their duties, and the time period has elapsed, they are required under state law to pay the benefits.

There are generally four parts to the incontestable clause. The first part is dependent on the state in which the insured lives and it establishes the legally required time limit that the insurer has to contest the policy. Most often this is a two year period. The second part is a highly controversial issue that goes contrary to the general law of contracts. Under any other type of insurance policy or legal contract, that contract shall become null and void at any time if fraud is determined. From the insurance company’s perspective, the incontestable clause opens the door for a number of fraudulent claims, and if they were to take the policy to court, they would lose. They have a set period of time to discover misrepresentation or fraud. End of story.

However, there is a ray of hope for the insurance company in the event that under certain circumstances, the policy was actually void at time of issuance. The main reason for this would be in the event that the insured had someone else take the medical exam for them in order to qualify. Since that insured did not meet the requirements at the time of issuance, there was no contract. This is to be distinguished from fraud or misrepresentation because it goes far above and beyond withholding vital information that could affect the decision on whether or not to insure the applicant. The final part of the incontestable clause doesn’t usually hold up in court, but it is provided anyway. It references permanent disability and accidental death, whereby the insurance company can try to avoid double indemnity (higher payout).

Of all the provisions in a life insurance policy, the incontestable clause is often the most misunderstood. It would almost take a Harvard graduate in law to understand all the nuances, but a basic understanding is really all that matters. It should be understood that because of this clause, underwriters will make every effort to establish that new policy holders have disclosed all information and have not purchased a policy fraudulently. If a policy holder should ever lose coverage based on fraud, that information will be duly recorded with all the credit reporting agencies, and it is unlikely that he or she will ever be able to purchase life insurance in the future. It pays to be honest.

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