Incontestability Periods In A Life Insurance Policy

The incontestability period of an insurance policy is one of the most important parts of a life insurance contract.

Life insurance policies must contain an incontestability clause — a provision that the policy will be incontestable after it has been in force during the lifetime of the insured for two years from its date, except for nonpayment of premiums.  This requirement is found in Texas Insurance Code, Section 1131.104.  It is also found it sections 705.101 thru 705.105.  The effect of these clauses is to limit the misrepresentation defenses so they can apply only during the first and second years.

As stated in the 1972, Texas Supreme Court opinion styled, Minnesota Mutual Life Insurance Company v. Morse, the purpose of the incontestability clause is to protect the insured from a contest as to the validity of the policy after the set period has expired.

These statutes do not specify whether the policy date or the effective date is considered its date; this creates an ambiguity that must be construed against the insurance company.  And an insurance company may not place a more onerous incontestability clause in the policy than the one prescribed by statute, although it may provide a shorter period than that prescribed.  This is discussed in the 1982, Texas 14th District Court of Appeals styled, Parchman v. United Liberty Life Insurance Company.

As an example, in the Parchman case the policy date in question was October 10, 1977, and the effective date was either July 20, 1977, or August 6, 1977, depending on whether a medical examination was required and completed.  Using the policy date (October 10) as the date that the clause began to run provided for a longer period than using the effective date (July 20 or August 6).  Thus, the policy’s incontestability clause was more onerous than the one prescribed by statute, so the statute prevailed, and the policy date in the incontestability clause was construed to mean the effective date.  In this case, the two year period began running on the earlier effective date rather than on the later policy date.

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