Every individual purchases a life insurance plan with the primary goal of financially safeguarding their loved ones. But did you know that insurers can contest your beneficiary’s claim? This is called as a contestability period during which a company can review your policy application for any inconsistencies. So, find out about the contestability period in life insurance and how the process works.
What Is Contestability Period?
In a life insurance policy, the contestability period is a clause put in place to secure the insurance provider from any fraud cases. Under this clause, if the policyholder passes away within 3 years of purchasing the life insurance policy, the insurer has the right to question or contest the claim raised. Thus, the company shall investigate the cause of death and verify the details that the insured had provided. If any information related to the health, medical history, lifestyle habits or dangerous profession was hidden, the insurer can withhold the payout. Usually, the contestability period can range from two to three years but may vary from one insurer to another.
Significance of Contestability Period
The premium of a life insurance policy depends on numerous factors such as the medical history of the individual, age, profession, health conditions, lifestyle habits, etc. You can find out your premium amount by using a life insurance calculator online. To avail a more affordable premium, some policyholders tend to hide certain habits or health issues that could lead to an increased premium amount. However, if these problems cause the policyholders’ early demise, the contestability period comes into the picture.
Therefore, the insurance provider gets a chance to verify the credibility of the claim during the contestability period. So, this feature not only protects the interests of the insurer but also allows more authentic claims to be paid out.
How Do Insurance Companies Contest Claims?
An insurance provider shall first investigate the cause of death of the policyholder. If the cause is a health condition or a lifestyle habit, the personal information of the insured provided to the company will be checked. In case the insurer gets any evidence of false information or breach of the policy terms, then they can withhold or deny the claim. This entire process can take time and vary depending on the circumstances of the case.
So, on contesting the claim, how do the insurance companies proceed with the settlement? Check out the process below:
- Authentic Claim
It may so happen that the insurer contests your claim which is genuine. In such a case, on investigating and verifying the details, the information you had provided will be proved authentic. Then, the company shall approve your life insurance claim and proceed with the payout. Your beneficiary will receive the complete sum assured amount without any trouble.
- False Claim
- If the policyholder had failed to share their lifestyle habit of drinking or smoking, the insurer will deduct the additional premium from the sum assured amount. This extra sum is the amount that would have been charged as risk protection at the time of policy purchase. But the remaining death benefit shall be paid out.
- The insurance provider can reject the claim entirely and pay out the premiums only under specific conditions. Such actions are taken in case the cause of death is beyond the coverage terms of the life insurance policy.
With this, you must have understood what life insurance contestability period is and how it safeguards insurers. Though all types of life insurance plans have this clause, it is recommended to read your policy documents thoroughly. Certain causes of death such as suicide are only covered after completing the first policy year.