We all recognize the financial value of a life insurance policy in protecting loved ones in the event of an unanticipated and premature death. Although life insurance coverage can offer replacement of a family breadwinner’s income, many beneficiaries find that insurance carriers frequently do not make recovering benefits under a policy an easy process. This blog post covers a number of issues related to the impact of the “contestability period” on life insurance claims disputes.
Insurance companies routinely contest a beneficiary’s right to a death benefit if the insured dies during the two years after the date the policy took effect, which is referred to as the “contestability period”. This critical look back window can be as short as one year in some states.
Relationship Between the Contestability Period and Misrepresentations by Policy Applicants
When the insured under a life insurance policy passes away, carriers typically have two years to “rescind” the contract based on material misrepresentations or material omissions in the application for insurance in Florida and many other states. The period is only one year in some states. Although misrepresentations or false statements in the application can justify denying a claim and rescinding the policy, the statement or information at issue must be “material”. The precise meaning of this term might vary depending on the jurisdiction, but Florida courts find that a representation is material if the actual information would have impacted the insurer’s decision to issue the policy under the same terms. A mistake regarding the color of your hair would not be material, but non-disclosure of a medical condition like congestive heart failure or cancer may be material.
After the contestability period has expired, the insurer typically cannot deny a claim based on a false representation in the policy application. However, the benefits distributed to beneficiaries can be adjusted so the net recovery approximates what should be received based on an accurate disclosure of the facts. If an applicant misstates his or her age, the amount the beneficiary receives generally would be consistent with the insured’s actual age rather than the age indicated on the application. Once the two year period has expired, the policy essentially becomes “incontestable” based on misleading and false information in the application except under narrow extraordinary circumstances.
When an insured dies during the contestability period, the insurer often refuses to pay benefits prior to completion of a thorough investigation. The insurer will meticulously review the insured's medical files and all application statements and supporting documents. The insurance company will attempt to identify disparities that can be used to justify contesting the death benefit.
The contestability period prevents insurance companies from sandbagging beneficiaries by collecting premiums for years and then rescinding the policy when a claim is filed. This protects beneficiaries from having a claim denied based on a misstatement that was made by the insured on the application many years prior.
Key Facts to Know about the Contestability Period
Insurers Must Pay Claims Even If Some Facts Are Wrong: If an insured dies during the contestability period, the insurer might respond in one of two ways after discovering false information on the application. Depending on state law, the insurer might modify the death benefit to adjust the premium to what it would have been if the insurer was informed of the actual facts. Alternatively, the insurer might deny the claim entirely. If a beneficiary is notified that a carrier is pursuing either of these options, please consult with an experienced life insurance claims lawyer.
The Contestability Period Can Be Reset: Because expiration of the contestability period generally will protect beneficiaries from denials based on misrepresentation grounds, policyholders need to be aware that this period can be subject to a “reset” under certain circumstances. If the policy lapses because of non-payment of premiums, and it then reinstated, this might result in a restart of the two-year window. A reset also might occur if the insured endeavors to transfer the cash value of a permanent life insurance policy into a new policy. This type of transaction is common to facilitate an improved return on investment.
Recovery of Benefits Takes Longer If Death Occurs During the Contestability Period: A claim during the two-year contestability period will take longer to resolve because the insurance company will investigate every statement that was made on the application for insurance.
Death During the Contestability Period Does Not Relieve Insurer of Contractual Obligations: Although an insurer can investigate the information provided in the application when the insured dies during the contestability period, the carrier is not excused from its policy obligations. Even if the insured dies within minutes of the policy going into effect, the insurer must pay the death benefit if the application information is accurate and other terms and conditions of the policy have been satisfied.
Insurers Often Request a Range of Documents to Investigate a Claim Made During the Contestability Period: The insurance carrier often requests a multitude of documents when investigating a life insurance claim. Examples of documents the insurer might gather and review include the autopsy report, medical records, employment records, business records, financial records, and statements from the insurance agent, family and friends. The carrier also might question friends and family about such topics as medical history, personal habits, lifestyle choices, occupational background, and hazardous activities.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].