The Contestability Period

 All life insurance policies sold in America have what is called a Contestability Period. I just want to make that as clear as I possibly can to eliminate any confusion. It is unavoidable. If a policy doesn't have a 2-year modified benefit period, it is likely Day 1 full benefit coverage. Health questions must be answered in order to qualify for this. It is important to understand that every policy begins with a 2-year contestability period, which gives the company the right to double-check the medical questions if the claim is made within the first 2 years. If death occurs during the contestability period, It can easily take every bit of 6 months before the claim is paid, or rescinded (premiums refunded). It's not a company thing, it's not a state thing, it's a national insurance law thing. Even health insurance policies have a contestability period. No different than a Term Policy being issued to someone who (based on health) the company believes will outlive the term, a Day 1 full benefit whole life final expense plan will only be issued to someone that the company believes is unlikely to pass away (from natural causes) in the first two years. Although the company has "the right" (in other words, the choice), all companies will contest 100% of all claims that fall within the contestability period, it is a standard procedure. Especially when it comes to simplified issue whole life insurance. The companies who offer plans that provide coverage for the full death benefit from day 1 issues policies based on medical questions that have been answered "no" by the applicant (to the best of their own knowledge). If it is discovered that a question which was answered "no" should have been answered "yes", the policy will be rescinded and the premiums refunded. As an example, the questions asked by the agent at the time of application may have been in the form of "have you had"? Now that it's time to pay the question's entirety is, Have you had, been diagnosed with, treated for, or otherwise been recommended to have treatment for ?... It's important for an agent to read the full question and not simplify it. Especially if daring enough to replace a policy which is already beyond contestable.

No one is promised tomorrow, much less 2 years. If death is due to an accident, most policies (even with a stated 2-year modified benefit period) pay the full death benefit from the very first day, unless the insured was under the influence of drugs or alcohol. In Ohio, after 2 years even a suicide is considered to be an accident and the claim will be paid in full. This falls under the suicide clause (which varies by state like most insurance laws). 

The contestability period protects the companies from adverse selection. It is common for someone to seek out life insurance when they think they need it, as opposed to being perfectly healthy with death being the furthest thing from their mind. It also makes qualifying for life insurance easier with less risk to the company. If everyone was fully underwritten in order to qualify for life insurance it would cost the company a lot more money, along with time and research. Even fully underwritten life insurance policies are contestable, and the company will generally exhaust all resources during the contestability process using criteria that was not required during the application process. It's not uncommon for a life insurance company to leave a bad taste in someone's mouth, and I believe this is one of the biggest reasons why. More often than not claims that take place during contestability are rescinded. As unfortunate as it is, considering the average commission for life insurance policy is around 150% of the annual premium paid inside the first year, you can see where the company hasn't even recuperated the commissions that have been paid out until the policy has been enforced for 18 months. I am fortunate enough to work for the largest final expense company in America which is privately owned, and also follows a business model of doing what is right for the consumer. As an example for the first 13 years as a broker, never once did I see a claim get paid in full when a client passed away during the contestability period.  However in the last 4 years while I've offered only this one company, I have had five clients pass away within the contestability, and those claims were paid in less than 30 days. There are times when a client is applying for day one coverage and during the prescription history check a medication comes up that will cause the policy to be offered as a modified benefit plan. Part of the application process is to determine which plan the applicant qualifies for. Underwriting accuracy reduces the chances of something happening differently than what the agent tells their client. Check out my post about replacements for a deep dive on why I think its a terrible idea.

Ohio Final Expenses