What does contestability in life insurance refer to?

Contestability in life insurance specifically refers to the time frame during which an insurer can challenge or deny a claim based on misrepresentations made by the policyholder at the time of application. This period typically lasts for two years from the policy's issuance. If a claim arises during this contestability period, the insurer has the right to review the details of the application to determine if the policyholder provided accurate and truthful information. If any discrepancies are found, the insurer may deny the claim.

Understanding this concept is essential because it emphasizes the importance of providing accurate information when obtaining a policy. After the contestability period expires, insurers usually cannot deny claims based on misstatements, unless there is evidence of fraud. This creates a level of protection for policyholders and ensures that insurers cannot arbitrarily deny claims after a lengthy period, which also promotes fair practice in the industry.