Life Insurance Policies And The Contestability Period

A life insurance policy is a contract that a person enters into with the insurance company. Under this contract, the person promises to make premium payments to the insurance company and in exchange the insurance company promises to make a payment to the beneficiaries named in the policy upon the insured’s death. However, even if the insurance company receives payments on time each month, it can try and avoid paying out the policy upon the insured’s death for a variety of reasons. This is especially so if the insured person dies within the contestability period of the insurance policy.

The contestability period is a period after the life insurance policy is purchased during which if the insured person dies, the insurance company has a right to contest the claim for a policy pay out. In most policies, the contestability period is within the first two years of the policy. Pennsylvania law requires that policies contain a provision that a life insurance policy shall be incontestable after the policy has been in place for two years. An increase in the policy amount at the request of the policy owner restarts the two year period.

Denials during the contestability period are common because the insurance company makes assumptions that the insured person misrepresented facts about his health or other facts in the life insurance application. During the contestability period, the insurance company combs through the insurance application, medical records, and any other documents that were submitted when the insurance policy was purchased. The insurance company may use any information that it can prove to be false, no matter how seemingly insignificant, to deny the claim for benefits.

Despite the insurance company tactic in making these initial denials based on any incorrect information, denials should generally only be based on material misrepresentations. This means that the incorrect information has to be regarding a consequential fact, for example, if the insured lied about having a serious disease, a family history of certain diseases, or lied about being a smoker. This is the kind of information that may have led the insurance company to refuse to issue a policy, or charge higher premiums.

In some cases, what is considered a material misrepresentation is spelled out in the insurance policy. However, in other cases, a court may have to decide whether the alleged misrepresentation is material in nature and can be used as a basis for denying a claim. A policy may also spell out certain circumstances under which a claim may be denied during the contestability period, including for example, if the cause of death is ruled to be suicide.

When a claim is denied during the contestability period, the beneficiary may still be able to receive the amount paid in premiums for the life of the policy. This is usually a much lower amount than the value of the policy. Before accepting an offer for this lower sum when a claim is denied, the beneficiaries should consider filing a challenge to a denial.

Contact Us for Legal Advice

If you filed a life insurance claim after the death of a loved one, and the claim was denied, you need to consult with an experienced lawyer on how to fight the denial. Contact Louis S. Schwartz and his team at ConsumerLaw Pa.com for more information.

Resources:

pacode.com/secure/data/031/chapter82/s82.24.html

scholar.google.com/scholar_case?case=14689137222183197289&q=material+misrepresentation+in+making+a+life+insurance+claim&hl=en&as_sdt=4,39