Incontestability Clause

[u18247]

Look. We can go back and forth on the state laws. I know what my state law is and confirmed with OIC. Here is the bottom line. I challenge anyone to find a case where a death benefit was denied outside the contestability period in a routine death claim. Maybe there is a case but I can't find one. I am talking about someone lying for smoking, health issues etc. I can't find one case where the incontestability was claimed irrelevant because an insured lied on the app. As I said, there have been impostor fraud cases (because the contract was essentially made with the impostor), insurability cases (particularly in life settlement cases) and murder cases. Can't find anything else.

 

[VolAgent]

Look. We can go back and forth on the state laws. I know what my state law is and confirmed with OIC. Here is the bottom line. I challenge anyone to find a case where a death benefit was denied outside the contestability period in a routine death claim. Maybe there is a case but I can't find one. I am talking about someone lying for smoking, health issues etc. I can't find one case where the incontestability was claimed irrelevant because an insured lied on the app. As I said, there have been impostor fraud cases (because the contract was essentially made with the impostor), insurability cases (particularly in life settlement cases) and murder cases. Can't find anything else.

I asked you a simple question. What state are you referring to?

 

[u18247]

I asked you a simple question. What state are you referring to?

You're right. The state is Maryland. I was just trying to make a larger point. In the real world (not in the statutes) I can't find any real bend in the contestability provision (besides the examples I stated) by the courts. Doesn't matter what state. In fact, it doesn't even look like insurance companies try to challenge the contestability period except for these extreme cases.

 

[VolAgent]

You're right. The state is Maryland. I was just trying to make a larger point. In the real world (not in the statutes) I can't find any real bend in the contestability provision (besides the examples I stated) by the courts. Doesn't matter what state. In fact, it doesn't even look like insurance companies try to challenge the contestability period except for these extreme cases.

I understand what you are saying. You are missing my point. Both Washington state and Tennessee have the law written as not allowing any contesting of the policy. But both Larry and I have spoken to people at the DOI and were told that there are exceptions to the law. Some cases of fraud will allow the policy to be contested.

And you are right, the companies rarely contest policies. The investigator I spoke to said as much. I doubt they would contest for smoking unless it came right after the end of the 2 years, and the person had been a lifelong smoker and managed to hide it.

Encourage applicants to be honest on the app, tell the underwriter if you have knowledge that contradicts what the applicant said, and forget about it. Odds are you'll never deal with a policy being contested for fraud. Nor will you know an agent who had a policy contested.

 

[u18247]

I understand what you are saying. You are missing my point. Both Washington state and Tennessee have the law written as not allowing any contesting of the policy. But both Larry and I have spoken to people at the DOI and were told that there are exceptions to the law. Some cases of fraud will allow the policy to be contested.

And you are right, the companies rarely contest policies. The investigator I spoke to said as much. I doubt they would contest for smoking unless it came right after the end of the 2 years, and the person had been a lifelong smoker and managed to hide it.

Encourage applicants to be honest on the app, tell the underwriter if you have knowledge that contradicts what the applicant said, and forget about it. Odds are you'll never deal with a policy being contested for fraud. Nor will you know an agent who had a policy contested.

I agree. I always walk away from business like that. In fact, I had a customer say I was a racist because I told her I would not write her as a nonsmoker because she had smoked 2 cigarettes in the last 6 months. Crazy.

 

[VolAgent]

I agree. I always walk away from business like that. In fact, I had a customer say I was a racist because I told her I would not write her as a nonsmoker because she had smoked 2 cigarettes in the last 6 months. Crazy.

Actually, I would have disclosed that, and then ask for non-smoker on the cover letter.

 

[jacobtn]

very interesting. I have a KY license but only written a few apps there (live in TN near GA).

thanks for sharing that info.

In Kentucky policies are uncontestable from the first day IF they replace a policy that has been in force for 2-years. Not even sucide is contestable on day 1 if another policy was replaced.

That's why it's real important for agents to always use replacement forms in Kentucky. We even have to fill out replacement forms if they aren't replacing coverage.

A lot of companies won't allow replacement business in Kentucky because the uncontestability laws are so strict.

 

[Newby]

very interesting. I have a KY license but only written a few apps there (live in TN near GA).

thanks for sharing that info.

You will notice that you have to do replacement forms in KY even if you aren't replacing anything.

And some of your companies will refuse any replacement business from KY. Too scary for them.

 

[LGilmore]

the clauses and wording are in there for a reason.

Usually with insurance, it's going to depend on the size of the policy on how much of a fight they'll get.

that said, NEVER assume an insurance carrier won't make an example out of a situation.

I remember as an agent, many things NYL let agents know that weren't common public knowledge simply to let us know if we did the same, they would spare no expense to imprison us too.

I would never ever blow off any statement in a policy as lacking value or enforceable. It's there for a reason and it is at the carriers whim if it gets pushed or not.

I'm just smart enough, not to be that dumb to think they put an unenforceable clause in a policy.

 

[Newby]

Think how much less life insurance would get sold if companies went around contesting policies past the 2nd year. The public would think of it like individual health insurance (right or wrong, people think health insurance is recended improperly.)
Some companies would issue anything and challenge it later if they could. Even with only two years to challenge certain companies do very little to verify upfront with FE policies.
In 15 years of selling Preneed and final expense I have had only 7 people die in the 1st two years that were not sold as GI policies (incontestable because there is no actual coverage in the first two years.)
Of the seven, only one policy did not pay the full claim due to the person had undisclosed chronic asmetha.
Insurance companies definitely track things like that. They can tell fairly accurately which agents "happen" to write a lot of bad business. Those agents gravitate toward companies that don't do MIBs and script checks and phone interviews.
You are better off selling them what they actually qualify for. Even though life policies are incontestable after 2 years.