An incontestable clause is a term usually found in life policies stating a period of time which when passed, will prevent the insurer from voiding the contract for reasons originating from misrepresentation, concealment or misstatement of information given when the policy was first signed.
This helps protect the insured from rouge insurers who have the intention of collecting premiums and refusing claims citing bad faith when they are made.
It also gives clients better peace of mind that insurers would not be able to weasel out of claims in future citing errors in application.
Sometimes people have no intention to hide or misrepresent facts. It’s just that they don’t really understand what types of information are required by insurers.
And people should not be faulted for not fully comprehending the confusing terms and vocabulary finance companies use in marketing and contracts. Sometimes a genuine forgetfulness can mean that certain information are not presented and declared correctly in the format that the underwriter requires.
For example, if a pre-application questionnaire asked if the applicant has a family history of strokes in the family and answered no while fully aware of both parents suffered from strokes, then if the incontestable clause is 2 years, the payout could be void if he suffers from stroke within that 2 years.
However, if he suffers a stroke after 2 year, then the claim is incontestable and the insurer cannot use the information gap as a fair reason to reject the medical claims.
While such clauses are meant to favor the insured, objective consumers should also look at how it is also meant offer some protection for insurer against people who have an intent to deceive.
It is well-known that various medical conditions are hereditary. Resulting in descendants of patients to suffer from the same medical conditions to varying degrees.
As a profit-driven business, insurance companies calculate the odds of such applicants filing a claim within a short window period. And if the odds are exceptionally high, then the incontestable clause might be inserted.
