Updated on October 4, 2023
A contestable clause is a provision commonly found in life insurance policies. It specifies a limited period, usually the first two years after the policy is issued, during which the insurance company has the right to contest or investigate the accuracy of the information provided by the policyholder in the application. If the insurer discovers material misrepresentations or concealed information that could affect the policy’s issuance or terms, they may have grounds to deny a claim or adjust the policy.
How does a contestable clause work?
Policy Application – When applying for life insurance, policyholders must provide detailed information about their health, lifestyle, and other relevant factors, which the insurer uses to assess risk and set premiums.
Two-Year Period – In the initial two years of the policy, if the insured person passes away, and the insurer uncovers material misrepresentations or concealed information, they can contest the policy, potentially leading to a claim denial or policy adjustment.
Investigation Process – In case of contestation, the insurer conducts an investigation, which may involve reviewing medical records, conducting interviews, and consulting various sources to assess the circumstances surrounding the misrepresentation.
Outcome – Following the investigation, the insurance company decides whether to uphold, void, or adjust the policy. If upheld, the claim is paid as per the policy terms; if voided, premiums may be refunded, but no benefits are provided.
Why is a contestable clause important?
Maintaining honesty and transparency when applying for insurance is paramount, as misrepresentations can result in complications and claim denials. However, once the contestable period concludes, policyholders can enjoy long-term protection and peace of mind, knowing their policy is secure and won’t be contested based on their initial application information.