In some states, new policies are contestable for at least one year, if not two. If you die while the policy is still contestable, the claim will be thoroughly investigated, and the company may refuse to pay the death benefit, especially if you lied on your application. This can cause payment delays to your loved ones, and they may have to wait longer for a payout if something suspicious is discovered.
Insurance companies can conduct investigations during the contestability period but must still pay benefits if everything is in order. If it is proven that you simply made a mistake on the application and that the premium would have been higher had you not made the mistake, the company can adjust for what you should have been paying and the death benefit may be reduced. For example, suppose you said you quit smoking a year ago but it had only been eight months; this could result in a reduction in the death benefit because the insurance company will still pay but at a higher premium.
If a person commits suicide within the first one or two years, the insurance company will not pay the benefit and will not refund the premiums. If you do not pay your premiums, you risk cancellation, reinstatement, and a new period of contestability that you will have to forego.
If you already have coverage and are not new to the life insurance industry, it is a good idea to keep it until the replacement coverage is issued and the policy is delivered. Many people report that cancellations of life insurance have often been disastrous.
Make sure to discuss your insurance needs with a licensed agent who can provide you and your family with the best protection.
Do you want to know more about life insurance? Read The Most Frequently Asked Life Insurance Questions for more information.