Litigation

life insurance girl"

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The contestable period on a life insurance policy is designed to protect the insurance company and policyholders (in the case of a mutual company) or stockholders (in the event of a stock company) from material misrepresentation and frauds. The actuaries of the insurance company sets it prices in good faith relying on the truthful recording of answers by applicants and agents.

In "The MIsrepresentation Defense in Life and Disability Insurance Cases" by C. Edgar Sentell states

"These rules have typically been formulated in terms of whether the misrepresentation was ?material.?  In some states, the insurance company?s right to defend or rescind is further limited by an additional requirement that the matter misrepresented actually contributed to the loss, contingency, event or hazard for which the claim is made.  In other words, in a limited number of states, the insurance company may not deny a claim or seek rescission unless a ?causal relation? exists between the misrepresentation and the actual loss.  Under such statutes or case law, when there is an applicant who falsely claims to be a nonsmoker, the insurance company can escape liability if the then insured dies of lung cancer due to smoking, but not if the insured later dies of AIDS.  Finally, in some cases, the insurance company cannot avoid liability even when the policy has been procured through outright fraud".

In addressing the Professional Planner forum, attorney George Berger of the New York law firm Phillips Nizer stated:

"All that the N.Y. Insurance Law requires is that there be a material misrepresentation in the application. Even an innocent misrepresentation will do and the common position taken by the insured that I told the broker or agent the truth but he failed to write it down will not excuse the misrepresentation.

The test for what is material is stated in section 3105 the N.Y. Insurance Law and it says:

"No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract."

When you apply for life insurance, you should carefully review the application BEFORE you sign the application. The application becomes part of the contract and is usually attached thereto, at the back. When you receive your annuity contract from your agent or the company, you should look over the application AGAIN and make sure that your application (that is now part of the contract) is completely truthful and accurately recorded.

Just remember if you screw up on your life insurance application you may never know the ramifications, but your family will!