You always want to look at the fine print when reviewing any contract. Of course, that goes for your life insurance policy, too. Tucked away in your policy's terms and conditions, you may notice the phrase "contestability period" and not know what it means or how it impacts your coverage.

A contestability period is something included in virtually every life insurance policy, and it's pretty easy to understand. But, since it may impact your beneficiaries, it's important to understand what it means. Here's what you need to know.

What Is a Contestability Period?

When you buy life insurance, it's often for the financial protection of your loved ones after you die. Your beneficiaries will get your death benefit, a lump sum payout. For most, a life insurance policy is something they hope won't be enacted for years, if not decades, down the road.

But there are some instances when the person taking out the policy passes away shortly after the coverage is enacted. This is when the contestability period matters. A life insurance contestability period is a two-year window during which insurers can investigate a death for fraud or misinformation and adjust or deny a death benefit accordingly.

If you pass away within this two-year period, your insurance company can check your medical, employment and criminal records to see if you've made a mistake or withheld information relating to your health and lifestyle that could have impacted the insurer's decision about giving you coverage. If they find any information that may have changed your coverage, they may deny or alter your death benefit.

When Does the Contestability Period Start?

Insurers give themselves this window to help protect their companies from life insurance fraud. The window starts on the day your policy is in force, which means after you've paid your first premium and are officially covered by the policy. If you decide to get coverage or have gotten all the paperwork but it's not official yet, the period hasn't started.

Industry-wide, this window is two years. However, check with your insurer to ensure that's the case for your coverage. If you let your coverage lapse and get another policy later, the period starts again from the new in-force date. So, even if you were one year and eleven months into the window on your previous policy, you have to start the clock over with your new coverage.

What Factors Are Considered by Insurers During the Contestability Period?

There are many reasons someone might put incorrect information on their life insurance application. It could be an honest mistake — you didn't intend to provide anything misleading. You may have transposed two numbers, forgot about an illness from a few years ago or recently taken up sky diving, which wasn't a hobby when you first got your coverage.

However, sometimes people lie on their applications to help them secure better or less expensive coverage or get coverage when they may be otherwise denied. If someone deliberately lies, the insurer provides life insurance coverage and may pay out a death benefit based on false information. A life insurance company wants to avoid that when possible.

In both these cases, the life insurance contestability period lets insurers look into the applications, medical history and other information to determine if they will approve or deny releasing the death benefit. Something else to keep in mind is that even if you don't pass away specifically due to the misrepresentation, your beneficiaries could still be denied your death benefit because of the false information.

What Happens During the Contestability Window if You Pass?

If you pass away during the two-year window, your insurer will pause your beneficiary's death benefits claim while they investigate. Depending on the situation, this investigation could take a few weeks or a few months.

The insurer will first look at critical pieces of information.

• Cause of death: The insurer will review the cause of death, even if it wasn't related to the mistakes or misrepresentations on the application.
• Application: The insurer will review the application to determine if there were any mistakes or misrepresentations.
• Medical records: The insurer will look to see if you misrepresented basic information such as weight.
• Health history: The insurer will investigate if you have hidden any past illnesses you purposely did not disclose.
• Record denial: The insurer will see if you did not allow labs to provide requested blood/urine samples during the medical exam that may have indicated health issues.
• Criminal record: If you lied about having a criminal record in the past or were on trial, in jail or on probation when applying for the coverage, the insurer may deny your benefit.

If the insurer finds that you lied or provided inaccurate information during your application, even if it was a mistake, they might alter or deny your death benefit.

For example: A person says they aren't a smoker, but they are. The insurer grants a policy based on them being a non-smoker, and they pass away in a car accident a year later. The insurer can still deny or alter the death benefit claim due to the misrepresentation of being a non-smoker, even if smoking had nothing to do with the accident that caused the death.

Suicide Clause

Many life insurance policies have a suicide clause, which also covers the first two or three years of a policy, giving the insurer the right to reject a death benefit based on a death resulting from self-harm. This is to deter people who may be actively considering harming themselves from purchasing a policy and leaving a death benefit for their loved ones.

People sometimes confuse the contestability and the suicide clauses because there is often an overlap in time. As with the contestability window, this clause starts over if your policy lapses. If death from self-harm happens outside of the stated period, the insurer pays the death benefit as usual.

What Happens if the Claim Is Denied?

If the insurer finds out that you did materially misrepresent information on your life insurance application, they can deny your claim. In general, there are a few different ways things can go from there:

• If the correct information would have led to an outright denial or coverage, the insurer can return the premium payments to the beneficiary. For example, if you lied about having a chronic illness that would have otherwise denied you coverage, your beneficiaries will get your premium payments back but no death benefit.
• If the information would have led to higher premiums, the insurer will pay the death benefit and subtract what you should have paid in premiums. For example, if you lied about smoking, your beneficiaries will get your death benefit minus what you should have paid in premiums for being a smoker.

What Happens if the Claim Is Approved?

If, after an investigation, your insurer found no errors or misrepresentations on your policy, they will pay your death benefit to your beneficiary. In many cases, they will also pay interest covering the investigation's time.

Why it Matters

While you may think a little fib won't hurt anyone, in this case, it can. Always try to be as honest as possible about your health and lifestyle because if you aren't, those impacted are your loved ones. Your life insurance policy is in place to protect them, and errors can jeopardize that.

Also, your loved ones may have to wait until the investigation is over to get your death benefit, potentially putting additional financial strain on them.

As you review your life insurance choices and your policy options, make sure you understand the contestability clause and what it means.