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January 2008 - The importance of knowing the effect of “contestability period” in your life Insurance policy

The importance of knowing the effect of “contestability period” in your life Insurance policy

☳ by Adam Aspilla

One of the reasons for purchasing a life insurance policy is to provide financial protection for your love ones when you die especially for those who are dependent on your income. This is a very good way of replacing your income when you are gone, particularly if you have not accumulated enough assets to sustain the financial needs of your dependents you will leave behind.

 

Furthermore, life insurance could give you peace of mind knowing that the finances of your love ones are taken cared of even if you are already gone. However, it is important for you to know the effect of the “contestability period” provision in your insurance policy to minimize the danger that your beneficiary may not receive the amount (face value) of your insurance policy when you pass away.

 

Basically, the contestability period is a provision whereby the insurance company could deny to pay a claim of a beneficiary of the insured who died within two years from the effective date of the life insurance, if on the application of insurance, the insured had made a misrepresentation or wrong information on his/her health condition intentionally or inadvertently.

 

Nevertheless, after the contestability period which is usually two years from the date the insurance was enforced, an insurance company could no longer deny a claim of a beneficiary despite any wrong information on the insurance application of the deceased insured.

 

In view of the foregoing, it is risky to transfer your insurance policy from one insurance company to another insurance company, for every time you transfer your policy you are subjected to the contestability period provision. Meaning, your contestability period would start again from the first day your transferred policy is enforced. If you die within the two years from the time you transferred your policy to another insurance company, there is a risk that a claim of your beneficiary maybe denied on ground of the contestability period provision.

 

Knowing the effect of the contestability period provision in your life insurance policy, should you need more insurance coverage, and to avoid the risk above mentioned, it would be wiser to just buy additional insurance than transferring your existing life insurance coverage to another insurance company.

 

Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.