Losing a loved one is undoubtedly one of the most difficult experiences anyone could go through. To make matters worse, this can also be a period of great financial difficulty if the deceased individual, whose income you were dependent on while they were living, has a life insurance policy that refuses to pay out.
If death occurs within the first two (2) years of a life insurance policy, it may be contested by the insurer. They will investigate the claim for misrepresentation--in other words, incorrect information the life insured may have provided during the underwriting process--and review the claim against the specific clauses of the policy that apply during the two-year contestability period. For example, if a medical question has been answered incorrectly, the policy may be cancelled.
The purpose of a contestable-claim investigation is, first, to confirm that the insured is in fact deceased and, second, to confirm the validity of the life insurance claim. If there is evidence that misrepresentation did occur within the first two years of the policy, either deliberately or accidentally, the insurer can nullify or rescind the policy.
If death occurs after the contestability period of two years, the insurer must pay out benefits. However, the insurance company can contest claims due to fraud for the life of the policy.
If you are a beneficiary, trustee or executor, make a policy file and keep all records in the file, including a copy of your beneficiary designation.
If you are faced with a life insurance policy denial because the insurance company states that health information was deliberately or inadvertently withheld or incorrect, you may still be able to do something about it. You should have a lawyer review the details of the denial of the claim and the original application to determine if there is a possibility of successfully challenging the insurance company's decision.
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