05/14/2021
To: Cavaliers Insurance Marketing Alliance
Incontestable Clause is a provision that makes the life insurance policy incontestable by the insurer after it has been in force for a certain time period. The laws of the states differ as to the form of the clause prescribed, but no state permits a clause that would make the policy contestable for more than 2 years.
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After a policy has been in effect for the period of time prescribed by the incontestable clause (normally 2 years), the insurance company cannot have the policy declared invalid. The courts have generally recognized three exceptions to this rule, as a result of which the incontestable clause is deemed not to apply because the contract that includes the incontestable clause was void from its inception. These three exceptions are as follows:
If there was no insurable interest at the inception of the policy;
If the policy has been purchased with the intent to murder the insured;
If there had been a fraudulent impersonation of the insured by another person (for example, for purposes of taking the medical exam).
The incontestable clause is a manifestation of the belief that a life insurance policy's beneficiaries should not be made to suffer for mistakes made in the application. The beneficiary is protected by the incontestable clause even if the error in the application is based on a fraudulent or material misrepresentation by the applicant or by a failure to meet a condition precedent to the existence of the contract.
After the insured's death, it would be extremely difficult, if not impossible, for the beneficiary to disprove the allegations of the insurance company that irregularities were present in procuring the policy. If there were no limit on the insurance company's right to question the accuracy of the information provided in the application, there would be no certainty during the life of the policy that the benefits promised by it would be payable at maturity. ### It is based on the theory that after the insurance company has had a reasonable opportunity to investigate the circumstances surrounding the issuance of a life insurance policy, it should thereafter relinquish the right to question the validity of the contract.
### If the insured dies during the contestable period, the policy never becomes incontestable. It remains contestable by the insurer even if it is not notified of the death claim until after the period expires.
Other points are worth noting. First, refusal to pay a claim because of non-payment of premium is not governed by the incontestable clause. Second, some insurers specify in their incontestable clause that it does not apply to disability benefits or accidental death benefits that may be provided as part of the life insurance policy. Third, the policy provision relating to misstatement of the insured's age or s*x takes precedence over the incontestable clause.
Source:
Burton T Beam Jr, David L Bickelhaupt, Robert M Crowe, Fundamentals of Insurance For Financial Planning, 2000, pp 216-217.
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Robert H. Bruce,MS,CLU,ChFC,LUTCF
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CAREER OPPORTUNITY: Agent, Broker, Agency Builder
IRA ROLLOVERS / PENSION PLANS / LIFE / DISABILITY
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