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Life Insurance Learning Center - Contract Provisions

Incontestable Clause, Part 2

Unfortunately, after two years (the contestable period), a contract that might be fraud will become legal. This goes against the law of contracts, which states that fraud makes any contract void. Also, it goes counter to the law, which states that agreements that disregard fraud are against public policy and are automatically void as well.

This clause is only reserved for life insurance companies. However, insurers have two years, which is ample enough to weed through policies and find out if there are any that are false.

What defines a contest? A contest is defined as any action taken to null an existing contract. Therefore, entering into a trial or taking legal action to contest a contract is illegal.

Not included in the actual provision is the understanding that common law applies to all life insurance provisions, including this one. For example, courts have ruled for insurers not to pay a claim if the person whom the policy is under had someone else take the physical exam and open the life insurance policy. This is because there was no real insurable interest at the time that the policy was issued, and therefore is not correct.

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