Colorado Life Producer License Practice Test

What is the life insurance clause that protects the policyholder against claim denials after a certain time?

1. Reinstatement clause

2. Contestability clause

3. Exclusion clause

4. Limitations clause

The correct answer is: Contestability clause

The contestability clause is a key provision in life insurance policies that serves to protect the insurance company from fraudulent claims made shortly after a policy is issued. This clause typically allows the insurer to contest or deny a claim based on misrepresentations or omissions made by the policyholder. However, after a specified period, usually two years, the insurer loses the right to contest the validity of the policy, which means that claims cannot be denied on the basis of misstatements made in the application. This provision is significant because it provides a level of security for policyholders, ensuring that once the contestability period has passed, their beneficiaries cannot be denied a death benefit because of issues related to misrepresentation. It encourages insurers to engage in thorough underwriting before issuing policies and helps maintain the integrity of the insurance process. In contrast, the other clauses mentioned focus on different aspects of insurance policies. The reinstatement clause pertains to bringing a lapsed policy back into force under specific conditions. The exclusion clause outlines circumstances under which coverage will not apply. The limitations clause generally specifies time limits for pursuing claims or actions related to the policy. Thus, the contestability clause specifically addresses the issue of claim denials after a set period and is the correct choice in this context.