What is an Incontestability Clause?
Many States have provisions designed to offer some assurance that life insurance benefits will be paid, even if the insured may have made misstatements in the insurance application. The idea is to make sure that if an insurance company has any questions or problems, those matters are addressed while the insured is still living. It is not fair to allow an insurance company to collect premiums for years only to then conduct a more thorough investigation after death and decide not to pay the insurance beneficiaries. These types of provisions are usually called "incontestability clauses." Essentially, such clauses dictate that after a certain period of time, usually 2 years, an insurance company cannot contest a life insurance policy for ANY reason, even fraud.
In California, this rule is set forth in California Insurance Code, section 10113.5, which reads as follows:
§ 10113.5. Individual life insurance policy; contestability; definitions
(a) An individual
life
insurance policy delivered or issued for delivery in this state shall contain a provision that it is incontestable after it has been in force, during the lifetime of the insured, for a period of not more than two years after its date of issue, except for nonpayment of premiums and except for any of the supplemental benefits described in Section 10271, to the extent that the
contestability of those benefits is otherwise set forth in the policy or contract supplemental thereto. An individual
life
insurance policy, upon reinstatement, may be
contested on account of
fraud or misrepresentation of facts material to the reinstatement only for the same period following reinstatement, and with the same conditions and exceptions, as the policy provides with respect to
contestability after original issuance.
(b)(1) Notwithstanding subdivision (a), if photographic identification is presented during the application process, and if an impostor is substituted for a named insured in any part of the application process, with or without the knowledge of the named insured, then no contract between the insurer and the named insured is formed, and any purported insurance contract is void from its inception.
(2) As used in this subdivision:
(A) “Application process” means any or all of the steps required of a named insured in applying for a certificate under an individual policy of
life
insurance, including, but not limited to, executing any part of the application form, submitting to medical or physical examination or testing, or providing a sample or specimen of blood, urine, or other bodily substance.
(B) “Impostor” means a person other than the named insured who participates in any manner in the application process for a certificate under an individual
life
insurance policy and represents himself or herself to be the named insured or represents that a sample or specimen of blood, urine, or other bodily substance is that of the named insured.
(C) “Named insured” means the individual named in an application form for a certificate under an individual
life
insurance policy as the person whose life is to be insured.
(c) This section shall not be construed to preclude at any time the assertion of defenses based upon policy provisions that exclude or restrict coverage.
(d) This section shall not apply to individual
life
insurance policies delivered or issued for delivery in this state on or before December 31, 1973.