What Is an Incontestability Clause in California?

Life insurance is recommended for anyone with dependents, business owners, and retirees because it helps ensure your loved ones are financially taken care of once you pass on. However, sometimes, people make errors on their insurance forms that can impact their claims. Luckily, California’s incontestability clause prevents insurers from using these mistakes against policyholders. However, what is an incontestability clause in California?

California has its own laws that govern life insurance under Penal Code section 10271 within the Department of Insurance. These laws help protect consumers and ensure their experience is fair and equitable. At Hobbs Law Group, we deeply understand these laws and can ensure they are applied to the fullest extent for your case.

Bad Faith Insurance

When a person purchases a life insurance policy, they typically do so with the hopes that their beneficiaries are financially secure once they pass on. While in most cases, insurance companies hold up their end of the bargain, some insurers act in bad faith and deny claims for unethical, suspicious, unfair, or unlawful reasons.

Here are some examples of how insurers can act in bad faith and deny insurance claims unjustly:

• Asking for an egregious amount of paperwork or documentation: All life insurance claims require paperwork that proves your information is valid. However, when an insurer asks for an unreasonable amount or type of paperwork, it can be a red flag.
• Not providing a reason in writing: Insurance companies are obligated to provide an explanation, in writing, for why they denied your claim. If this does not occur, you may have the legal right to make a claim against them with the help of a lawyer.
• Canceling a policy shortly after a claim is made: This is one of the most serious acts of bad faith. Sometimes, policyholders will cancel a claim for unethical or frivolous reasons, such as making a simple and honest error.

What Is California’s Incontestability Clause?

Sometimes, policyholders make mistakes on their life insurance applications. In some cases, insurers may use these mistakes as a reason to deny a claim. However, the incontestability clause prevents this from occurring by not allowing an insurance company to contest a policy based on misrepresentations or errors on an application after a certain period of time after the policy is being enforced.

Purpose of Incontestability Clause

In 2023, $20,918,804 was spent on life insurance premiums in the state of California, with a total of 20,918,804,471 premiums written across a broad range of insurance companies. This shows that a significant number of Californians purchase life insurance and may require leniency in the application process. The incontestability clause provides leniency by protecting policyholders and their beneficiaries from being denied a claim once it has been in force.

Exceptions to the Incontestability Clause

While the incontestability clause is legally binding, there are some exceptions. For one, if a person does not pay their premium, their policy may be contested. Another exception is if a person attempts to defraud the insurance company by providing false information. Under Penal Code 550(a), it is unlawful to make a fraudulent insurance claim.

This exception is applicable even for the original insurance application. If a person submits false information such as their age or gender or more serious misrepresentations such as omitting health information, smoking history, or employment information, this is considered fraud. This is vastly different from making an error like misspelling a name or unintentionally providing outdated contact information, which is incontestable after a certain period.

If a person does not pay their premium or misrepresents themselves, the insurance company can deny their claim before the incontestability period, even if the person dies soon after.

When to Hire a Lawyer

If you submitted a life insurance policy application and believe your claim was unfairly denied, you should promptly consult with a lawyer. Your lawyer may use the incontestability clause to prove that your application or policy is valid and should be enforced. Everyone makes mistakes, even unintentional omissions, especially when it comes to insurance applications. You shouldn’t have to miss out on receiving benefits because of a simple error.

FAQs

Q: What Is the Purpose of the Incontestability Clause?

A: The basic purpose of the incontestability clause in California is to protect insurance policyholders. The incontestability clause prevents insurance companies from rejecting applications based on errors as well as preventing them from denying claims after a certain period. It also encourages insurance companies to underwrite policies prior to issuance rather than after a claim is submitted.

Q: What Are the Exceptions to the Incontestability Clause?

A: There are a few exceptions to the incontestability clause in California. While the clause prevents insurers from rejecting applications based on errors, insurers may be able to deny claims in some cases. For example, if there is an instance of fraud, if a person miscategorized their gender, or if they intentionally misrepresent themselves.

Q: What Is the Contestability Period in California?

A: The contestability period in California is two years. This means that within two years of a life insurance claim, the insurer has the right to invalidate the claim. Some insurers use this period to investigate the circumstances of someone’s passing. Therefore, if someone signs a policy application and then passes away a year later, the insurance company has the right to potentially invalidate the claim.

Q: How Much Does an Insurance Lawyer Cost in California?

A: In California, the cost of an insurance lawyer varies by location, lawyer’s skill and experience, and the complexity of a person’s case. If you have a complex case that involves a considerable payout, your lawyer’s fees may reflect that. However, it is important to note that the price you pay for a lawyer may be worth it in the long run for your settlement.

Contact Hobbs Law Group Today

Life insurance provides peace of mind and financial security. Moreover, laws that govern life insurance are there to ensure consumers are protected. If you believe that insurance laws, like the incontestability clause, were improperly applied to your policy, you have rights. At Hobbs Law Group, we have experience handling bad-faith insurance claims with aggression and compassion.

If you have recently been denied a claim, contact our firm for an initial consultation. We are ready to protect your rights.