Purchasing life insurance can seem overwhelming, and many people put it off.
However, you need to consider purchasing a policy to keep your loved ones protected.
There are several factors to consider when you purchase life insurance, one of which is the contestability period that some life insurance companies could enact.
When your loved ones or you go to receive a payout from a life insurance policy, you may encounter the contestability period, which could throw a wrench into receiving the payout from the plan.
Table of Contents:
- What is the Contestability Period?
- Important Notes
- How Do Life Insurance Policies Work?
- Getting Affordable Coverage
What is the Life Insurance Contestability Period?
The life insurance contestability period is a two-year window that starts from the day you purchase your life insurance plan.
If you were to die within this two-year period, the insurance company has the right to deny your loved ones the payout from the policy, but it’s not as scary as it sounds.
These contestability periods are only used in specific situations, and most applicants won’t have to worry about them.
During the contestability period of the life insurance policy, the insurance company can launch an investigation that will determine if your family will get the payout from the plan or they will be denied.
In most cases, the only time that the insurance company employs the contestability clause is if they assume that there was false information on the application or if there was some fraud.
If the insurance company finds that the applicant lied on the application about their health or about any pre-existing conditions that they have, they have the right to dispute the claim and not deliver the payout from the policy.
That’s why it’s also important to be 100% honest on your application and reveal any relevant information about your health or past.
Important Notes about the Contestability Period
There are several different factors bout this two-year window that you need to understand what you’re buying your life insurance.
Most People Will Not Have to Deal With It
There are very few policyholders that will ever need to deal with the contestability period, but if you do, it’s vital that you understand what it is, and what rights the life insurance company has.
Slows Down Your Payout
If the life insurance company decides that they want to investigate the policyholder and look at the cause of death versus the information on the application, it’s going to slow down the process of getting the payout from the plan.
As the beneficiary, you won’t receive the money as quickly, because they want to ensure that you aren’t scamming the company in some way. Once they complete the investigation, then you or your family will be able to receive the money from the plan.
You Can Still Get The Payout
If the company does look into the application to ensure that the information wasn’t falsified or omitted, and they find some other error, but that error doesn’t directly deal with the death or related causes, they will still be required to pay out the policy, but this will be getting into a gray area and could hinder the process even further. If they find other errors, they can then continue to contest the policy, and it will get tricky from there.
Just because someone dies within the contestability period, doesn’t mean that you automatically won’t get the payout from the policy. If the insurance company investigates the insurance claim, and learn that everything is honest, they will still give the beneficiary the money from the plan, even if you were to die the day after that you bought the plan.
How Do Life Insurance Policies Work?
The premise of life insurance is simple, you purchase a policy through the insurance company, and after that, you continue to pay the monthly premiums on the plan.
You can either purchase a term life insurance or a whole life insurance.
Term Life Insurance
With a term plan, they are only effective for a predetermined amount of time, usually ten years, 20 years, or 30 years.
After that period is up, the plan is no longer effective. After that, you’ll have to purchase another policy if you still want life insurance protection.
Whole Life Insurance
With a whole life policy, the plan is active for as long as you continue to pay the monthly premiums for the coverage.
It’s a permanent form of coverage that is perfect for anyone that doesn’t desire to reapply for coverage in the future.
The disadvantage to the whole life policies is that they are more expensive than term life insurance plans.
The Life Insurance Policies Contestability Period
Once the insured person passes away, their beneficiary can receive the payout from the policy, which is where the contestability could come in.
This clause could keep your loved ones from getting the payout of the plan, which could leave them with massive amounts of debt and no way to pay for it.
Getting the Most Affordable Policy
Many people realize that purchasing life insurance is critical, but there are millions of people that don’t have the coverage that they need.
Perhaps the main reason that consumers don’t’ get a life insurance plan is because they assume that it will be too expensive for them to fit into their budget, but that’s completely inaccurate.
There are dozens of affordable options for life insurance, and with the right tools, you can pick the most affordable rates on your life insurance policy.