Essentially, an insurance policy is a contract between the insured and the insurer.
What is an Incontestability Clause?
Did you know that if the policy has been in force for more than two years when the insured dies, the insurance company is obligated to pay the claim? However, in many cases, what may seem like a proper denial on the face of it is improper under the law.
Many state laws have provisions designed to offer some assurance that life insurance benefits will be paid, even if the insured made misrepresentations in the insurance application. It is unfair to allow an insurance company to collect premiums for years and then refuse to pay the insurance beneficiaries because the insured may have answered some questions on the application incorrectly.
N.J.S.A. 17B:25-4 requires every insurance policy to contain a provision establishing a period of contestability not longer than two years. The purpose of incontestability clauses is to give the insured a sense of security after the stated period elapses.
The clause does not condone fraud, but allows an adequate period for the insurer to discover fraud and protect its rights. The clause has the effect of encouraging insurers to be diligent and alert by prescribing a time period after which the insurer must relinquish its right to contest the validity of a policy.
More info: Lawyer for life insurance claims