Arizona Life and Health Practice Exam

Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a specified period of time?

1. Rescission Clause

2. Avoidance Clause

3. Incontestable Clause

4. Termination Clause

The correct answer is: Incontestable Clause

The incontestable clause is a provision in a life insurance policy that protects the validity of the contract after a specified period, usually two years. Once this time frame has passed, the insurance company cannot contest claims based on misstatements or omissions made by the insured in the application for coverage. This clause is put in place to provide certainty and stability for policyholders, ensuring that their beneficiaries will receive the death benefit regardless of any inaccuracies in the application that occurred beyond the contestability period. This clause serves to promote trust in the insurance system, encouraging individuals to obtain life insurance without fear that the insurer could deny a valid claim—often referred to as "incontestability." It strikes a balance between the insurer's right to investigate and the policyholder’s right to a secure contract, thereby fostering an environment of reliability in insurance coverage. Other clauses like the rescission clause allow an insurer to cancel a policy under certain conditions, the avoidance clause enables the insurer to nullify a contract based on fraud or misrepresentation, and the termination clause outlines the conditions under which a policy could be terminated, but none of these provide the same level of assurance regarding a policy’s validity after a set period as the incontestable clause does.