Understanding The Role of Incontestable Clause In Life Insurance

Imagine you are continuously paying premiums to keep the life insurance policy active. However, when the time comes to reap its benefits, the insurer refuses to pay the amount to the beneficiary or either to the policyholder. 

Why?

Due to a misstatement found in the original application. 

Let’s understand with an example. 

For example, imagine you purchased a life insurance policy with a sum assured of ₹50 lakhs and paid premiums for ten years. However, the insurer denies your policy coverage benefits, stating that they found a misstatement in your medical history on the original application. 

Sounds very wrong, right? 

Well, do not worry. There’s one clause that can save you from such a situation, i.e., the Incontestable Clause. Are you eager to know more? Keep reading and find every key detail about the incontestable clause that can save you from these unfair claim denials.

What is the Incontestable Clause?

An incontestable clause, commonly known as a “Three Year Clause”, is a provision made to ensure that the life insurance company does not deny paying the policy benefits after three years of the premium being paid. 

This rule is made in accordance with “Section 45 of The Insurance Laws (Amendment) Act 2015” to protect the policyholder’s rights in the life insurance policies. 

There are possibilities when there’s some unintentional error or misstatement made in the original policy application. The incontestable clause ensures that such unintentional mistakes do not lead to the claim being rejected. Peace of mind, right? 

Do remember that while this clause is a great provision to help policyholders, it does not support any outright fraud. 

Now, this clause is equally beneficial for the insurers as well! 

Here’s how! 

In the contestability period, the insurance companies can do an investigation to identify if the applicant has given any false information. If any such information is found, they are free to reject coverage or end the contract immediately.

How an Incontestable Clause Works: Legal Framework and Implications

An incontestable clause sets a limited time period within which the insurer is allowed to question the validity of a policy and deny a claim due to a misstatement. 

However, once this period is over, the insurance company must pay the policyholder for the coverage, even if there are any inaccuracies in the original application. 

To know in-depth, let’s understand the key legal frameworks and implications involved in an incontestable clause: 

• Incontestable Period: This period is generally of three years from the day of policy issuance. 
• Bar on Contestability: After the incontestable period, the insurer isn’t legally allowed to refuse to pay a death or maturity benefit (if any) based on any misstatement in the original application. 
• Exceptions: In case of any fraudulent misrepresentations or intentional hiding of essential information, it will be considered an exception, and the claim can be refused. 
• Legal Protection: The incontestable clause ensures legal protection to the policyholder and ensures the beneficiaries receive all the policy benefits. 
• State Laws: There may be some changes or limitations to the incontestable clause as per the state law. 

In some cases, when the life insurance policy lapses due to the policyholder missing on making premium payments, the incontestable period has to start over. Once the premium payments are reinstated, the contestability period also starts from the date of reinstatement. 

Here’s the catch: assume you have paid your policy premium for several years, but you miss out on a few premiums, and your contestability period starts all over again. Even in this case, the insurer can refuse to pay you the amount if they find any misstatement in the application. 

A simple solution to this is to make sure you pay your premiums on time and provide proper and honest details about your health to your insurer! 

Practical Application and Example of Incontestable Clause

Here are some practical applications/examples of the incontestability clause: 

Example: Wrong Or Incomplete Information

A policyholder unintentionally left out a small detail, like a mild health issue, while providing details for their insurance application. 

In such cases, without an incontestable clause, the insurer can legally refuse claim settlement if they find false information about the insured’s lifestyle or health. 

On the other hand, if there was an incontestable clause in the insurance policy after the incontestable period has passed, the insurer is not allowed to deny the claims, even after material misrepresentation. 

Comparing Incontestable Clauses Across Policies

The incontestable clause is a standard feature in most life insurance policies, but the specifics can vary from one policy to another. For instance, some plans might have additional conditions and exceptions. 

So, it’s important for policyholders to read their policy documents carefully and understand the terms of policy-specific incontestable clauses. To compare and understand the incontestable clauses across top insurers as per your need, you can email your query to support@insurancedekho.com and one of our advisors will connect with you.

The Benefits of The Incontestable Clause

Let’s understand some of the key benefits of the incontestable clause: 

• Peace of Mind: Without a doubt, the incontestable clause provides great peace of mind to policyholders, knowing their benefits are secured. 
• Reduced Risk of Claim Denial: After the incontestable period, the risk of claim denial is almost zero unless there’s some fraudulent misinformation. 
• Beneficiary Protection: The incontestable clause also makes sure that the beneficiary gets all the death benefits as per the policy without any delay. 
• Encourages trust: It fosters trust between the policyholder and the insurance company, promoting long-term relationships.

Common Misconceptions and Myths

Enough about the benefits, let us now uncover some of the most common misconceptions and myths around incontestable clause: 

• Immediate protection: Having an incontestable clause doesn’t immediately make you eligible for the policy coverage. There’s a certain period for which you must pay premiums. 
• Absolute protection: You don’t get coverage all the time. The incontestable clause won’t be there to save the policy coverage if it’s a case of fraud or intentional misrepresentation.
• Guaranteed payouts: The incontestable clause doesn’t guarantee you a specific amount. There are many factors, such as policy terms and the insured’s death circumstances, that significantly affect the payout. 
• Universal applicability: The clause is not applicable to all types of life insurance or is not offered by all life insurance providers. Therefore, it’s necessary to understand the policy terms carefully. 

Strategic Insights For Policyholders

• Understand the Waiting Period: Make sure you don’t make any fumbles in the incontestability clause. During this period, ensure you provide complete and accurate information. Moreover, do not forget to pay all the premiums on time.  
• Review Policy Exclusions: It is highly recommended to carefully review your policy terms and make sure you understand each and every clause. Often, there are some exclusions on policy terms. 
• Keep Your Policy Updated: If there are any significant changes in your life, such as a change in health condition or occupation, make sure you notify your insurance company promptly. Keeping your policy updated can help prevent potential disputes later on.

Conclusion

We certainly hope that this blog proved helpful to you in learning the ins and outs of incontestable clauses in life insurance. 

Wrapping up, we advise you to consult with an insurance advisor. Only they’ll be able to provide you with the specific information for the incontestable clause in your life insurance policy. You can either email us at support@insurancedekho.com or call us on our number 7551196989.