An incontestability clause limits the reasons an insurer can cancel coverage, usually related to innocent omissions. It has a time limit of 2-3 years, but does not protect against deliberate fraud. Invoking the clause may lead to an investigation into the omission’s intent.
An uncontestability clause is a type of provision that is often included in various types of health and life insurance policies. The clause limits the scope of reasons an insurer may choose to cancel coverage, usually in relation to some sort of omission or error on the part of the covered party. Typically, an incontestability clause places limits on how much time can elapse after the contract is entered into and the omission is discovered. When the fault is discovered after the indicated period of time has elapsed, the problem cannot be used as a reason for canceling coverage.
The idea of the no contest clause is to minimize the ability for insurers to cancel policies in order to avoid claims based on omissions which were most likely innocent and do not constitute an attempt by the policyholder to defraud the supplier . With most insurance plans that include this provision, a time limit of two to three years after the establishment of coverage is considered sufficient. If no problems have occurred during that period which would reveal any omissions on the part of the covered party, the scope of coverage would remain in effect and be subject to any claims made by the insured or its legal representatives.
The incontestability clause does not protect the policyholder from cases where attempts are made to defraud the insurer. This would include the deliberate supply of false information which is intended to establish a basis for future claims which do not comply with the terms and provisions within the policy. For example, if the insured was aware of a pre-existing health condition at the time the health insurance plan was set up and chose to deny that the condition existed in order to claim benefits at a later time, this could be considered an attempt to defraud. In these circumstances, the insurance company may cancel the policy and may also have grounds to bring a lawsuit against the former customer.
Invoking the clearing clause can sometimes lead to an inquiry into whether the omission was actually done without willful misconduct or whether the action was intended to create a situation which would enable the policyholder to receive benefits which he would not be otherwise authorized to collect. The complexity and duration of the investigation will depend on the circumstances of the problem as well as the amount of the claim which led to the question of the accuracy of the data provided to the insurer. During this period, the policy is generally considered still in force, but any claims made on the plan are generally kept under review pending the outcome of the investigation.
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