What is the 2 year contestability?

Life insurance policies are purchased to protect the people you’d leave behind if you were to die. A policy is designed to pay out a set amount of money to your beneficiary in the event of your death. However, there are a few times when that might not happen. A life insurance company can deny your beneficiary a payout in some cases. 

You’re most likely to run into these situations during what’s called the two-year contestability period.  The two-year contestability period is the two years right after you buy a life insurance policy. During this time, an insurance company can review your application if a death claim is made.  

The word contestability means a contest or dispute to a claim. When it comes to legal documents like a life insurance policy, the death benefit claim is being what is disputed.

The company can delay payout while investigating the death and information on the application. Your beneficiary’s claim could be denied if the information you provide in your application was untrue or misleading to get a better rate or obtain coverage altogether.  

This doesn’t happen often. In fact, you could die within a few days of your new policy going into force, and your beneficiary would still get the full policy payout. 

The claim should be paid as long as you were truthful in your application.  However, there is a small risk during the contestability period that the claim could be denied. 

2. What is the grace period?

A life insurance grace period refers to the period of time after premium payments are due, during which the policy is still active. It is also commonly referred to as a “lapsation grace period” as it is technically delaying an insurance policy lapse by the length of the grace period – typically 30 days from the premium due date. Grace periods are legally required, and insurance companies are obligated to pay the policyholder the full death benefit of the policy during this time frame. If you have a cash value life insurance depending on when the policy was issued the death benefit could still paid out if there is enough cash value to extend the coverage.

3. What is the extended  term?

If there is enough cash value left in policy after lapsing, the cash value would carry the policy for an specified period of time to include days, weeks, months or years.

4. What is a primary and contingent beneficiary?

A primary beneficiary is the first and usually only person or entity to receive the death benefit. A contingent beneficiary would receive the death ONLY if the primary beneficiary is deceased before a beneficiary change is completed.