Life insurance policies typically contain a two-year contestability period during which the insurer has broad authority to investigate and potentially deny a claim based on misrepresentation or fraud in the application. Once this period expires, many policyholders and beneficiaries assume that the insurer can no longer deny coverage. While the contestability period does limit certain defenses, it does not create absolute protection. In some circumstances, life insurance companies can still deny a claim after the two-year window has passed.
Understanding the Contestability Period
The contestability period is a standard provision in most life insurance policies. It allows the insurer to review the policyholder’s application for accuracy if the insured dies within two years of the policy’s effective date. During this period, insurers may rescind the policy if they discover that the applicant made material misstatements or omissions, even if those misstatements were not directly related to the cause of death.
If the insured dies after the two-year contestability period has expired, the policy is considered “incontestable” under most state laws. This means the insurer cannot void the policy based solely on misrepresentations in the application, unless an exception applies.
Exceptions to the Incontestability Rule
Although incontestability clauses provide strong protection for beneficiaries, they are not absolute. Several exceptions allow insurers to challenge or deny claims even after two years have passed:
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Fraud
Some jurisdictions allow insurers to deny claims for fraudulent misrepresentations even after the contestability period ends. Fraud involves intentional deception, and courts may permit rescission of the policy if clear and convincing evidence of fraud is presented. -
Policy Lapse or Nonpayment
If the policy lapsed due to nonpayment of premiums, and was not in force at the time of death, the insurer is not obligated to pay, regardless of how long the policy had been active. -
Exclusions and Policy Terms
The insurer may deny a claim based on specific policy exclusions, such as death during the commission of a felony, suicide after the contestability period (if not covered), or death caused by an excluded activity. These denials are based on contract terms rather than application content and are not limited by the contestability clause. -
Lack of Coverage or Eligibility
If the insured never met the eligibility criteria under a group policy, or if the coverage never became effective, the insurer may argue that no enforceable policy existed. This is distinct from contesting the policy and is treated as a question of contract formation. -
Forgery or Unauthorized Beneficiary Changes
Claims involving forged applications, unauthorized changes to beneficiary designations, or other acts of bad faith may be challenged at any time if the insurer can show the policy was procured through unlawful means.
Burden of Proof and Legal Standards
After the contestability period expires, the burden of proof typically shifts to the insurer to justify any denial. Courts often require a higher evidentiary standard when an insurer attempts to avoid payment based on exceptions to the incontestability clause. Allegations of fraud must be supported by specific evidence, and vague claims of inconsistency or omission are often insufficient.
Some states strictly limit the exceptions to the incontestability period, while others allow more flexibility. As a result, the outcome of a post-contestability denial may depend heavily on the applicable jurisdiction and the policy language.
Conclusion
Although the two-year contestability period limits an insurer’s ability to rescind a policy, it does not guarantee that a claim will be paid after that time. Policies can still be denied for reasons such as fraud, lapse, ineligibility, or exclusions found in the contract itself. Understanding the distinction between contestability and coverage disputes is essential for anyone involved in a life insurance claim filed more than two years after the policy was issued. To learn whether a life insurance company can deny a claim after 2 years visit The Lassen Law Firm website.
