If you have ever asked yourself whether an insurance company has the right to cancel your life insurance policy, the answer is generally "no". If you have been candid and accurately disclosed all personal and medical conditions to the insurance carrier, your policy cannot be cancelled unless you fail to pay your premium on time. However, there are instances when the insurance carrier can not only cancel your coverage but can also deny a claim.
Specifically, if the carrier discovers that there were major misstatements or nondisclosure of information (“material misrepresentation”) not disclosed during initial underwriting that would have disqualified the insured from a policy offer, the insurance carrier can exercise their right under a contestability clause to rescind a contract or deny a claim and return all premiums received. Fraud is another factor that could cause the insurance carrier to rescind a policy. The contestability time period is typically two years but be sure to review your policy as it will be specifically outlined in your contract.
If my policy has been in force beyond the contestability period, can the insurance carrier still deny and claim or cancel my policy?
As mentioned above, claims can be denied if the insurance carrier uncovers fraud where the insured knowingly withheld information that otherwise would have influenced the carrier to deny coverage. A few reasons that may justify a policy rescission before or after the contestability period would include the insurance company discovering that, prior to receiving the issued policy, the insured did not disclose life threatening cancer, diagnosis of HIV, or the use of tobacco or illegal drugs.
You should look for the incontestability clause written in your contract. This clause outlines where the carrier gives up the right to challenge the contract after the initial contestability clause time period has expired. The language should read something like the following: Except for nonpayment of premiums, we will not contest this policy after it has been in force during the lifetime of the insured for two years from the date of the policy or reinstatement. If we contest a reinstatement, we will contest only statements made in the reinstatement application.
Are there any other reasons that a carrier can terminate my contract or deny a claim?
Yes, if you are not making your premium payments on time. You must stay up to date on the premium payments outlined in the contract, or you run the risk of having your policy canceled. Most life insurance policies have a grace period, typically 31 days, in which the policy will stays in force; however if the premium is not paid before the end of the grace period, your coverage will end and the policy will lapse. You might be able to reinstate the policy, but you will be subject to carrier underwriting guidelines. It is important to review your policy contract for specific details.
How do I make sure my policy claim isn't denied?
It is important to be honest and fully disclose your medical conditions from the beginning. If you have a question, you should discuss it with your insurance agent. It is always a good idea to provide the names of your doctors so the carrier can request additional information if need be. Lastly, if your claim is being denied and you (or your beneficiary) feel that you have upheld your part of the contract, you should seek the advice of an attorney immediately.
*The material provided in this article is for informational purposes only. We do not provide legal, tax or accounting advice. Please contact your own advisers for legal, tax and accounting advice.
