Individual disability insurance policies include a provision that after a period of time, the policy becomes incontestable. In theory, these provisions mean that once the contestable period is over, an insurer has to pay a claim no matter how many lies there were on the application for insurance.

People have been known to lie about their health condition or history in order to obtain a disability income policy, thinking that they can wait out the contestability period and then file a claim.

We advise against such thinking for the following reasons:

• Despite what is written in the policy, you are not likely to be paid when the insurance company digs into the facts. As time elapses, you may tend to rely on coverage being in place that may not be there when you need it.
• A person who lies on an application to obtain an insurance policy may be subject to criminal prosecution for fraud.

If an insurance company challenges the validity of your coverage on the basis of statements you made to obtain it, it is advisable to hire an attorney for assistance. If the court finds in favor of the insurer, you may be prosecuted for criminal fraud in addition to losing your insurance benefit. To learn how to choose an attorney, click here.

If necessary, free or low cost legal help is available. Click here.

For more information, see:

• Contestability Period Defined   
• Reality, In Spite Of An Incontestable Provision

There is a conflict when it comes to filing claims under a disability insurance policy. Insurance companies want the right, when a claim is made, to examine what was said in the policy application to be sure there were no lies. On the other hand, the consumer wants to believe that if there is a claim, he or she will be paid.

The conflict between these two interests is settled by state laws which usually require that disability policies have a provision that lets the insurance company contest what’s said in the application for a period of time after the issuance of the policy. After that period of time, the balance is supposed to swing in favor of the insured. This is done by prohibiting the insurance company from challenging the validity of the policy on the basis of the information on the application.

The provision is called an “incontestable provision.” The period during which the insurance company is allowed to contest coverage based on what is said in the application is generally two years from the date of the issuance of the policy.

Incontestable provisions generally read something like:

“After the policy has been in force for two years, not counting any time the insured is disabled, the validity can not be challenged on the basis of misrepresentations in the original application.”

Generally courts have interpreted incontestable provisions to refer to “material misrepresentations” which generally means that if the insurance company had the accurate information, they would not have issued the policy.

If the insurance company catches the misstatement during the “contestable period,” the company does not have to prove that you intended to mislead, merely that the new information would have affected the insurance company’s decision.

In spite of what it may say in the disability insurance contract, it is difficult to force an insurance company to pay a claim when there have been misstatements in the application about the insured’s health.

Regardless of the wording in an insurance contract, or how long it has been in existence, some states allow insurance companies to claim the policy never existed. Alternatively, they state that if the policy did exist, it should be terminated because of fraud.

On the other hand, there are a number of state courts that say that once the Contestable Period has passed, a claim cannot be denied on the basis that the health condition existed prior to the effective date of coverage. This means that even if the policy was obtained fraudulently, the coverage is still valid after the incontestable period has passed and claims must be paid.

Even if you purchase a disability insurance in one of the more consumer friendly states, it’s difficult to plan on receiving a benefit if you become disabled after the contestable period ends. After all, you can expect the insurance company to say no and force you to spend money and hire an attorney to go to court to prove your case.

Aside from the expense and uncertainty at a time when your health condition has forced you to stop working, putting the facts under oath on a court record can set you up for a prosecution for criminal fraud.

This site does not encourage nor recommend lying on an application to obtain insurance coverage.