What Is an Incontestability Clause?

An incontestability clause is a type of provision that is often included in various types of health and life insurance policies. The clause limits the scope of reasons why the insurance provider can choose to cancel the coverage, usually in relation to some sort of omission or misstatement on the part of the covered party. Typically, an incontestability clause places limits on how much time can pass after the initiation of the contract and the discovery of the omission. When the misstatement is discovered after the stated time frame has passed, the issue cannot be used as grounds for canceling the coverage.

The idea of the incontestability clause is to minimize the opportunity for insurance providers to cancel policies as a means of avoiding payouts on claims based on omissions that were most likely innocent and do not constitute an attempt on the part of the insured party to defraud the provider. With most insurance plans including this provision, a time limit of two to three years after the establishment of the coverage is considered sufficient. If no issues have arisen during that time that would reveal any omissions on the part of the covered party, then the scope of the coverage would remain in effect and be subject to any claims submitted by the insured party or his or her legal representatives.

An incontestability clause does not protect the insured party from instances in which there is an attempt to defraud the insurance provider. This would include deliberately providing false information that is intended to establish a basis for future claims that are not in compliance with the terms and provisions within the policy. For example, if the insured party was aware of a pre-existing health condition at the time the health insurance plan was established and chose to deny that the condition existed with an eye of claiming benefits at a later date, this could be considered an attempt to defraud. Under these circumstances, the insurance company would be able to cancel the policy and may also have grounds to pursue legal action against the former client.

Invoking the incontestability clause can sometimes lead to an investigation to investigate whether or not the omission was in fact done with no malice aforethought, or if the action was intended to create a situation that would allow the insured party to receive benefits that he or she would not otherwise be entitled to collect. The complexity and duration of the investigation will depend on the circumstances surrounding the issue as well as the amount of the claim that led to the question regarding the accuracy of the data supplied to the insurance provider. During this time, the policy is usually considered still in force but any claims made on the plan are usually held in check pending the outcome of the investigation.