Understanding the Important Role of the Contestability Period on Life Insurance Claims [Part II]

This is our Part II in our three-installment blog series that discuses a wide range of issues involving the contestability period in relation to life insurance claims by beneficiaries.  While Part I of this blog series provided an overview of the definition, role, and importance of the contestability period, Part II focuses on the reasons life insurance applicants usually learn that lying to obtain a lower premium typically backfires.

Why Life Insurance Applicants Generally Tell the Truth

The contestability period prevents insurance companies from sandbagging policyholders by collecting premiums for years before rescinding the contract if a claim is eventually filed.  This protects beneficiaries from having a claim denied 15 years after a policy has been obtained based on an investigation of an insured’s answers in a policy application.  While this might seem like an invitation for unscrupulous individuals to attempt to deceptively apply for a policy after being diagnosed with a severe medical condition, there are a number of reasons that applicants generally do not lie when submitting paperwork to secure life insurance. 

The most compelling motivation to be truthful is that insurance fraud is a crime.  In other words, people do not knowingly apply for coverage after diagnosis of cancer or other life-threatening diseases because the consequences can be incarceration and other criminal penalties.  A husband or wife who submits an application for a spouse under these circumstances also could face criminal liability. 

The insurance industry began adopting contestability clauses in the middle of the 19th century to make life insurance policies more attractive.  The provisions were designed to dispel the notion that insurers routinely circumvented their duty to pay benefits based on a minor mistake in an insurance contract.  Further, this type of clause has been required by statute in Florida since 1955.

Exceptions to the Two-Year Look Back Window

While expiration of the contestability period usually prevents an insured from rescinding a policy for lies or misrepresentations, there are certain exceptions to this general rule.  While these exceptions might vary based on state law, examples include:

Excluded Causes of Death: Suicide is routinely excluded under life insurance policies.  If this is not a covered cause of death, beneficiaries will not receive the death benefit regardless of the amount of time that has passed since the policy went into effect.

Misrepresentation of Age: While misstating your age on a life insurance policy is not protected by the two year rule, the insurer usually cannot rescind the policy based on state law.  If the insurance company learns of this type of deception after the insured dies, the remedy typically will be an adjustment of the amount of the proceeds disbursed to the beneficiaries.  The death benefit will be reduced to the appropriate amount based on the insured’s actual age minus the cost of any avoided premium costs.

Wrong Person Evaluated: When you submit an application for a life insurance policy, the process usually involves submitting to a medical examination.  If the applicant for a life insurance policy enlists someone else to take the exam, this conduct also will not be protected outside of the contestability period in most states.  This is often referred to as “imposter fraud”.  For example, Jim Smith might fill out a life insurance policy application, but his cousin Tim Jones appears for the medical examination that is a precondition for obtaining coverage.

Our Miami insurance claims law firm invites life insurance beneficiaries to contact us if you are having difficulties with your insurance company.  Miami life insurance claims lawyer J.P. Gonzalez-Sirgo handles claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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