The “incontestability clause” is a provision found in life insurance policies that limits the insurer’s ability to dispute the policy’s validity after it has been in force for a certain period, typically two years. This clause means that once the policy has been active for the specified period, the insurance company cannot contest or deny a claim based on misstatements or omissions made by the insured on the application, except under certain circumstances such as fraud. A misstatement of age is handled separately: the benefit is adjusted to the correct age whenever it is found. The time during which the insurer can still contest the policy is called the contestable period (or contestability period).
Key aspects of the incontestability clause include:
Protection for policyholders
This clause provides policyholders with a degree of security, knowing that their policy will not be easily voided or contested by the insurer after the incontestability period has passed.
Misstatements and omissions
While the clause protects against challenges due to honest mistakes or unintentional omissions in the application process, it does not protect against fraudulent misrepresentations.
During the contestable period
If a claim is made, the insurer can review the application. If it finds a material misrepresentation, such as inaccurate information about health, medical history or lifestyle, it can deny the claim, adjust the benefit or cancel the policy. This doesn’t mean every claim in the first two years is contested; it applies when there is reason to believe a material misrepresentation was made.
Time frame
The incontestability period is typically two years in force during the insured’s lifetime, starting on the date the policy goes into effect. If the insured dies within this period, the insurer may investigate the claim and the original application to ensure accuracy.
Exceptions
Even after the incontestability period, insurers may have grounds to contest or deny claims in cases of fraud, where there was intentional deception in the application process.
Legal and regulatory basis
In Canada, the two-year rule is set by law: by the provincial insurance acts and, in Quebec, by the Civil Code of Québec. For disability insurance, it doesn’t apply to a claim for a disability that begins in the first two years of coverage.