The main objective behind purchasing life insurance is to provide a financial safety net for your loved ones in your absence. The money they receive could help them be financially independent and not face uncertainty of any kind. When you purchase a life insurance policy, there are different clauses that are included in the paperwork. One such clause is the contestability period. What is life insurance, what is this period? and what does it do and what does it mean for you as a policyholder? Read on to know more about this period and its impact on you.
What is life insurance?
A life insurance policy is a type of policy which provides financial protection to the policyholder’s family from different life risks. When you purchase this policy, there is an agreement of sorts between you and your insurer. Your insurer will pay a death benefit to your family in the event of your sudden demise during the term of the policy. This money will help them manage day-to-day expenses without having to worry about any income source.
What is the contestability period?
When you purchase life insurance, your insurer agrees to pay an amount known as the death benefit to your family in the event of an untimely demise. However, if the policyholder passes immediately after purchasing the policy, there are chances that the insurer might contest or reject your claim. This period of contesting the filed claim is known as the contestability period.
The time period differs from insurer to insurer. For some insurers it is 2 years, while for some it is 3 years. If you, as the policyholder were to pass away during this period after purchasing your policy, the insurer can contest the claim filed by your family to receive the death benefit. It is only the thorough verification of your claim which will help the insurer decide whether or not to disburse the amount to your family.
Why the need for this period?
After the policyholder passes away, the responsibility of filing the claim falls upon the family members of the policyholder. However, at times the policyholder, while purchasing the plan, may not disclose all the necessary information. They tend to provide false information related to their lifestyle or medical history. In such situations, the policyholder is cheating the insurer and paying less money towards the policy than they should. This also causes heavy losses to the insurer as they are charging such customers less amount of money and paying out more money when a claim is filed.
The contestability period helps in stopping such practices. The period allows them to properly scrutinise the claim filed by the family of the policyholder. This is done by studying the medical and professional history of the policyholder. The period allows insurers to filter out fraudulent claims from genuine claims. As a result, insurers can penalise people filing fraudulent claims and recover any losses they might have suffered.
How could a claim get rejected?
In the event of the policyholder’s demise, the nominee of the policyholder will file the claim so that they can receive the death benefit promised in the life insurance. When they file a claim, they have to disclose all the information related to the policyholder’s demise. The insurer will study the claim. This is done by studying the medical records and history of the policyholder. If the insurer finds any hidden lifestyle habits such as smoking or alcoholism that the policyholder did not disclose while purchasing the policy, the insurer will reject the claim. If the policyholder had a pre-existing illness which they did not disclose, the claim will get rejected.
How does the insurer contest a claim?
In the event that the claim is authentic, the insurer will pay the family of the policyholder in full without contesting the claim. However, if the claim is found to be fraudulent, one of the two following things could happen:
- The insurer will pay the death benefit to the family of the policyholder. However, the payment will be made after deducting all the extra premium amount that the policyholder should have actually paid instead of the lower premium they were paying.
- The insurer will straightaway reject the claim filed by the family of the policyholder. In such cases, the insurer will pay back the premium paid for the policy. This can happen only under certain conditions and is not always the case.
This is all the relevant information about the contestability period in a life insurance. You can get in touch with your insurer to know more about this period and about the types of life insurance policies.