Every policyholder should be thoroughly familiar with what is life insurance contestability period is, which is a crucial provision of a life insurance policy. It lasts for two years and begins on the date the policy was issued. Despite the fact that purchasers frequently overlook the contestability period when they sign the policy documents, it has a substantial impact on beneficiary claims that are filed before the conclusion of this period.
Table of Contents
What Is A Life Insurance Contestability Period?
The contestability period is a condition in a life insurance policy that permits the insurance company to contest or question the claim made by the policyholder’s beneficiaries if they pass away within two years of acquiring the policy. In such circumstances, the insurer is entitled to request verification of the buyer’s personal information.
This provision gives the insurers the right to reject or withdraw a claim that is lodged before the period of two years following the policy’s effective date. They may even have the right to deduct some or all of the beneficiaries’ benefit payments in some circumstances. In the event that any claims are made in situations like this, they will flatly refute them. You can avail of several life insurance tax benefits.
How Do Customers Typically Violate Contracts?
There are many ways that customers typically violate contracts. Disparities include lying about one’s current or prior health, hazardous employment history, bad behaviours, drug usage, and other addictions.
What Role Does The Contestability Period Play?
Insurance firms frequently encounter situations where customers intentionally mislead insurers by providing erroneous or fraudulent personal information regarding their way of life, state of health, and type of employment. As the cost of a life insurance premium is based on the insured’s age and medical history, there is a strong likelihood that consumers may tend to provide incorrect information about their health and lifestyle to lower the cost of the premium. To deceive the insurers and lower the premium rate, a customer may lie about hiding a risky occupation, ill habits, drug usage or addictions, harmful hobbies, etc. The contestability clause is used in this situation. *All savings are provided by the insurer as per the IRDAI-approved insurance plan. Standard T&C apply.
How Do The Insurance Companies Oppose A Claim?
The insurance company initially verifies the claim’s validity while challenging it by reviewing the customer’s medical history and other personal data. In the process, the firm has the right to decline or cancel the claim if it obtains any proof showing deception or contract breach by the insured. There is no set period for investigations; instead, it might change depending on the situation.
What Could Happen If A Claim Is Disputed By The Company?
Giving false information to the insurer is a breach; in these circumstances, the company has the right to investigate the validity of the insurance claim. Insurance companies typically resolve such contested claims in the following ways:
In the Event of Authentic Claims
If the application form’s information about the policyholder is verified as accurate, the insurance provider will validate the claim and pay out the full amount plus interest to make up for the time lost during the contestation process.
In The Event Of An Information Breach
- After deducting the additional premiums that would have been charged if the actual information had been disclosed at the time of purchase, the insurer typically distributes the death benefit to the beneficiaries. For instance, the additional premiums that a smoker or an alcoholic would have had to pay will be subtracted from the death benefit’s total amount.
- Another option is for the company to totally reject the claim and return the premiums to the beneficiaries in certain circumstances. However, insurance companies only take such severe measures when the newly discovered details regarding the policyholder’s health, job, medical history, etc., go beyond what is covered by the policy.
What Modifications Occur Following The Contestability Period?
The following modifications should be made to a life insurance policy once the contestability period has passed:
- A life insurance policy becomes incontestable after the contestability period has ended. This means that for the duration that the policy is in force, the beneficiary will get the full coverage amount. However, there may be some exceptions in some policies where the beneficiaries are not compensated.
- If your life insurance policy’s coverage expires, the new contestability term won’t begin until you renew it or get a new one. To prevent future issues, be sure to only supply accurate information when purchasing new insurance.
Don’t forget that life insurance offers several life insurance tax benefits.
* Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.