Arizona Life and Health Practice Exam

In which situation can an insurer contest an individual life insurance policy?

1. During the first year

2. During the first two years

3. During the first five years

4. Only under specific circumstances

The correct answer is: During the first two years

The correct choice is that an insurer can contest an individual life insurance policy during the first two years. This timeframe is significant as it’s known as the "contestability period." During this period, the insurer has the right to review and investigate the information provided by the policyholder. If the insurer finds that the application contains misrepresentations or omissions that materially affect the risk they took when issuing the policy, they can deny a claim or rescind the policy. This two-year period is designed to allow insurers to ensure that the underwriting process was conducted accurately and that any potential fraud can be addressed swiftly. After this period, the insured's rights to the policy generally become much more secure, and claims cannot be contested based on misrepresentations made in the application, except in certain circumstances such as fraud. Going beyond the first two years, such as into the five-year timeframe, is not standard practice for contesting life insurance policies under most state regulations, including Arizona. Therefore, the two-year contestability period is a pivotal time frame for insurers to assess risk and ensure that the information provided during the application process is truthful and complete.