A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

Readers of this blog, and those who are familiar with life insurance, know what the contestability period is: a two-year time period after the issuance of a life insurance policy when the insurer can cancel or rescind the policy if the insured made what’s called a “material misrepresentation” in the application, such as in response to a medical or financial question.

But, in most states, if the insured lives past the two-year mark, the insurer has to pay the policy, no matter what misrepresentations were made.

A recent article is floating around the web on this subject and I’m linking to it here: Life Insurance Contestability: 7 Things to Know. Take a look, it’s a good primer on the subject.

The first point made, and it’s one that I wholeheartedly agree with, is that people should be honest when completing the application. I’ve seen too many instances where, for whatever reason, incorrect information is submitted and the insurer later ends up cancelling the policy when the insured dies within the two-year period. If the agent fills out the application for you, which sometimes happens, make sure that you carefully review it before signing. You can’t always count on the agent to be conscientious.

Now, there are two statements made in the article that I’ll take issue with. It says that insurers don’t investigate each and every claim where the insured dies within the contestability period. There’s no way really to know if that is or isn’t true, since each life insurance company maintains its own records, but I tend to doubt it. Trust me, if insurers can get out of paying a claim, they’ll do it.

The article goes on to say that if the insured dies in a car accident, the insurer probably won’t perform a contestability investigation, but it will if the insured dies from a health-related condition.

This isn’t correct.

Life insurance companies will investigate no matter what the cause of death, and if they find that a health condition was misrepresented, they will cancel the policy, even if the condition didn’t relate at all to the cause of death. In many states, such as New York, they can do this. Only a handful of states require that, for a policy to be cancelled, the misrepresentation must have some relationship with the cause of death.

That’s why it’s important for insureds to make sure their application is correct–to prevent a cancellation from occurring. In the first place, as a general principle, everyone should be honest, anyway, but when it comes down to cost-benefit and the need for a secure life insurance policy, it’s simply just not worth the risk to either lie or be careless in the application.

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