Life Insurance Policy Benefits: The Two Year Contestability Period

Most people think that collecting on life insurance proceeds is a simple process – and it should be, in theory. However, most life insurance policies have a two year contestability period that can become an issue when beneficiaries attempt to collect the proceeds.

Always an issue with life insurance

A life insurance policy’s two year contestability period is always an issue when it comes to life insurance, according to Bob Scott, a California attorney and partner with the Advocate Law Group, and insurers often attempt to use it to their advantage. He explained:

There’s been a huge backlash because health insurers and others have been abusing that two-year incontestability period. However, it’s always on the table in the context of life insurance. Statistically, a smaller percentage of people die in that two year period in life insurance matters than people that need health insurance claims paid in the first two years because usually people use health insurance every couple months in some way.

So, during the two year period, the insurance company can try to rescind it, but it’s a national debate today over whether the contestable issue should require that the companies essentially prove your intent to deceive them when you filled out the application.

For example, when life insurance applications ask, ‘Have you ever seen a doctor?’ Well, most people can’t remember if they went to the emergency room or saw a doctor when they stepped on a nail and needed a tetanus shot – especially if the event happened years beforehand.

Scott says that those kinds of things normally escape the human memory and normally escape being written down. He continued, “Unfortunately, they’re asked in these huge, open netted questions. If the insurance company finds that you did see a doctor because you stepped on a nail and didn’t tell them, they may try and rescind your policy – even though you may have died from something completely unrelated to that event.”

Consumers should push back

When a life insurance company wrongly denies the proceeds of a policy, Scott says those are fertile grounds for pushing back against the insurance companies these days and telling them that it’s just not fair. He explained:

Insurance companies often fail to obtain appropriate medical records on the front end before issuing policies. If they don’t do that, they can’t later step away from the life insurance contract that they promised to pay. So, after the two year incontestable period, insurance companies should pay merely upon the presentation of an identifiable dead body, a death certificate and a legitimate beneficiary claimant who is entitled to receive those benefits under applicable laws.

That’s how life insurance should work. However, I have always had a number of life insurance claims pending in my office over the past 25 years. There’s always some reason for not paying, but those reasons are usually ridiculous.

Accidents and sickness

Another type of life insurance claim concerns accidents or sickness. Scott explained how this type of claim works with the following example:

If you went in for an angiogram today and the unfortunate, unintended medical process caused a probe to puncture your aorta and you bleed out and you die, that would be an accident. In other words, you went in for a medical condition, but what happened during the procedure was not an intended consequence in any way, shape or form.

Many times the carriers would pay the life insurance part of the claim, but would not pay the accidental death part of the claim. In other words, ‘We have a dead body so we’re paying you the $25,000 for the life insurance; however, even though you have accidental death coverage for another $25,000, we’re not paying that because we think it was an illness as opposed to an accident.’ You have to look at those cases very closely.

Cooperation is the key to getting results

Scott says that the most important thing for consumers to remember is that cooperating with insurance companies is the key to getting results. He explained, “Cooperate with life insurance companies by providing them with the necessary information and documentation. Also, keep a record of everything you say. Communicate with them in the mail – and in writing. Make sure they communicate with you – again, in writing. Make sure they spell out in the denial the basis with particularity as to the provisions in the policy that they rely upon and the facts that they assume as the basis for the denial.”

If your insurance company hasn’t paid your valid life insurance benefits, they may have acted in bad faith. To contact a qualified attorney whose practice focuses in this area of the law, please click here. Consultations are free, without obligation and are strictly confidential.

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