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What is a life insurance contestability period?

Life insurance is an important precaution that can be of immense help to beneficiaries at a difficult time in their lives. The last thing you want to hear when you are in the position of having to make a claim is that the insurer is delaying or even flat-out denying your claim.

One common situation when insurers conduct a close investigation into a policy's documentation is when the death occurs within Texas' contestability period. The law allows insurers to investigate and contest claims that beneficiaries submit within two years after the policy takes effect.

Grounds for contesting a claim

As with other types of insurance, insurers worry about fraud when it comes to paying out life insurance claims. The contestability period helps them weed out common types of fraud.

Most times, clear errors or trivial mistakes should not cause the company to deny a claim. However, the insurer may deny the claim or reduce the payout if it finds a material misrepresentation.

Material misrepresentation

Material misrepresentation means omitting or lying about facts that would affect the terms of the policy. In such cases, had the insurer known the truth, it would likely have refused to issue the policy or would have issued it on different terms, such as with higher premiums.

One common type of misrepresentation happens when policyholders do not provide full and accurate medical information. For example, a person receives a terminal diagnosis but hides this fact from the insurance company. This type of misrepresentation can lead to denial even if the policyholder did not actually die of the terminal condition but of some other cause, such as a car crash.

Potential outcomes

An insurer who investigates during the contestability period and finds material misrepresentation may still choose to pay out the policy (although this is unlikely). The insurer may also deny the claim. If the misrepresentation let the policyholder pay lower premiums than he or she should have, the insurer may pay out the claim after making a deduction for the amount of the difference between the premiums that were paid and those that should have been paid. 

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Jon Michael Smith Attorney

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