What Is the Incontestability Clause in Life Insurance Policies? 
An incontestability clause is a standard provision in most life insurance policies. Essentially, it prevents the insurance company from contesting the validity of a policy after a certain period of time has passed. This period is typically two years in many states, including New York. The primary reason for this clause is to offer policyholders security and peace of mind. It ensures that once the insured has lived for a specified period, the policy cannot be contested based on misstatements or omissions made in the application process.
The incontestability clause is particularly important when the insurer tries to deny a claim based on misrepresentations made by the policyholder during the application process. Without this clause, the insurer could potentially contest the policy years after the policyholder’s death, citing minor discrepancies that may not have even been intentional.
The Two-Year Rule in New York: How It Works
In New York, the two-year incontestability rule means that once two years have passed since the issuance of a life insurance policy, the insurer cannot contest the policy’s validity based on any misstatements or omissions made in the application. This is a powerful protection for policyholders and beneficiaries alike, as it ensures that insurance companies cannot retroactively deny claims due to technicalities.
- Fraud: If the insurer can prove that the policyholder intentionally provided false information or engaged in fraudulent activities during the application process, they may contest the claim, even after the two-year period has expired.
- Non-payment of Premiums: If the policyholder failed to pay premiums, causing the policy to lapse, the insurer may be able to contest the claim based on the non-payment of premiums.
We contacted Trief & Olk to help us with a life insurance issue and Shelly Friedland was the attorney assigned to our case. Before Shelly took our case she explained to us that the likelihood of our success without going to court was possible but not likely. Unfortunately we did not get the outcome we had hoped for but it was our decision to not move forward and have our case litigated. Shelly is very knowledgeable and was very straight-forward in her assessment of our case as we moved forward. She was very patient and thorough in answering our questions. She always responded in a timely manner and listened to our concerns. We would certainly recommend Shelly and would use her firm again in the future.”
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Shelly Friedland worked on my case where a life insurance policy had lapsed and was even a few days beyond the grace period. Farmers had rejected my claim twice and was unwilling to take a second look. Shelly was able to get them to pay the entire claim without going to court, and the full amount was deposited in my account within a couple months. Highest recommendation.”
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How Does the Two-Year Rule Help Policyholders?
The two-year rule in New York is a crucial piece of consumer protection legislation that ensures insurers cannot deny a claim simply because they find a technical reason to contest the policy. For beneficiaries, this rule provides reassurance that they won’t have to fight against an insurance company years after a loved one’s death. Here’s how the two-year rule benefits policyholders and beneficiaries:- Prevents Unfair Denials: The rule stops insurers from using minor misstatements or technicalities to deny a claim after a significant period. It also helps protect beneficiaries from the burden of proving that their loved one’s life insurance policy should be honored.
- Increased Security for Beneficiaries: When the policyholder passes away, beneficiaries can be assured that they are entitled to the benefits as long as the two-year period has elapsed. This provides them with the financial support they need during a time of loss.
- Encourages Accurate Disclosure: The two-year rule incentivizes policyholders to provide accurate information at the time of application, knowing that as long as they maintain their premiums and don’t engage in fraudulent activities, their policy will eventually become incontestable.
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What to Do If Your Life Insurance Claim Is Denied
If your life insurance claim has been denied, and you believe that the two-year incontestability rule applies to your situation, it’s essential to take the following steps to protect your rights and increase your chances of getting the payout you deserve.- Review the Policy and Denial Notice: The first step is to carefully review your life insurance policy and the insurer’s denial notice. The denial notice should specify the reason the claim was rejected. If the insurer is contesting the policy based on misrepresentation or a technical issue that occurred within the two-year period, you have a strong case to dispute the denial under the incontestability rule.
- Consult with a Life Insurance Lawyer: A life insurance lawyer can help you understand the legal implications of the two-year rule and determine whether the denial is valid. An experienced lawyer can assess whether your claim was wrongfully denied and help you navigate the appeals process.
- File an Appeal: If the insurer denies your claim despite the two-year rule, you may have the option to file an appeal. The appeal process will involve submitting additional documentation and arguments as to why the policy should be honored. Your lawyer can assist with this process and ensure that you present the strongest case possible.
- Consider Legal Action: If your appeal is unsuccessful, you may need to consider filing a lawsuit against the insurance company. Legal action can compel the insurer to pay the claim, especially if you can demonstrate that the two-year rule applies to your case.
Can an Insurer Contest a Policy After Two Years?
While the two-year incontestability rule offers significant protection for beneficiaries, insurers still have the right to contest a policy in certain circumstances after the two-year period. These exceptions include:- Fraud: If the insurer can prove that the policyholder intentionally provided false information or withheld material facts during the application process, they may have grounds to contest the claim. Proving fraud, however, can be difficult and often requires strong evidence.
- Material Misrepresentation: If a material misrepresentation was made during the application process and it directly affected the insurer’s decision to issue the policy, the insurer may attempt to contest the claim even after the two-year period. However, proving material misrepresentation is complex and often requires legal intervention.
- Failure to Pay Premiums: If the policyholder failed to pay the premiums and the policy lapsed, the insurer may argue that the policy is void, even after two years.