If you have existing coverage and are not new to the life insurance industry, it is a good idea to keep existing coverage until after the replacement coverage has actually been issued and the policy is delivered. So many individuals report that cancellations of life insurance too often have proved to be disastrous.
New policies remain contestable for at least one year and more often two years in some states. If you die while the policy remains contestable, the claim will be investigated much more thoroughly and the company can deny paying the death benefit, especially if you lied on your application. This can delay payment to your loved ones and they may have to wait longer for a pay-out if they find something suspicious.
Insurance companies can investigate during the contestability period but still have to pay benefits if everything is good to go. If it is proven that you simply made a mistake on the application and if the premium would have originally been higher, the company can adjust for what you should have been paying and the death benefit may be reduced. For example, let’s say you said you quit smoking a year ago and it had really only been eight months; this could cause a reduction in the death benefit since the insurance company will probably pay but based on a higher premium.
If someone commits suicide within those first one or two years, the insurance company will not pay the benefit and return premiums. And if you do not pay your premiums, you run the risk of cancellation, possible reinstatement and a new period of contestability that you will have to forego.
Make sure that you discuss your insurance needs with a licensed agent that can provide the best protection for you and your family.
Want to learn more about life insurance? Read our article The Most Frequently Asked Life Insurance Questions.