One of the most investigated issues dealing with IDI claims is “incontestability”, a provision in nearly all IDI insurance contracts preventing insurance companies from rescinding policies in effect more than two years because of misinformation.
Incontestability also prevents dishonest persons from making false claims during the application/underwriting process in order to be issued a discounted disability policy. If it is found that an insured made false claims, or provided inaccurate information, insurers can then rescind (take back or end) the policy issued by returning all paid premium to date, or they can begin again by issuing a new policy based on accurate information, or refuse to issue a policy at all.
Inaccurate statements during the application process are referred to as “misrepresentations” rather than “warranties, or fraud”. I can understand why this is so because the application process is often so hurried, over the phone, or filled out by sales agents that to “guarantee” the accuracy of the information would be foolish. For example, if a female applicant lied about her age, it is presumed she misrepresented the information instead of deliberately lying to get a lower premium.
When insureds file a disability claim within two years of the Effective Date of Coverage, the insurance company will conduct an “incontestability” investigation of all of the information provided on the initial application forms to see if it is accurate.
Actually, this is pretty easy to do from patient notes and doctor’s statements used to investigate the initial disability claim. If there is any inaccurate information, the claim may not be paid depending on what the insurer will do about it. If a claim for disability is filed AFTER two years from the Effective Date of Coverage, then the insurance company is barred from doing anything about misinformation.
Applicants for new disability coverage must be very sure that all medical information concerning prior impairments and disabilities be provided. Several years ago I became aware of a policy issued by Unum that the company rescinded because the insured failed to disclosed her use of Advil. Of course, this was ridiculous, but it happens if the company thinks it can get away with it.
Insurance companies are also very clever and look for inaccuracies anytime claims are filed within two years of the Effective Date of Coverage.The investigations seem to happen more to the wealthier claims, or claims with Lifetime benefit. Think. When the contract was issued, the insurance company would not have known of future claims for disability, but if a claim IS filed, “incontestability” is a good way for the insurance company to “get rid of the contract”, especially one with Lifetime benefit.
Therefore, it is extremely important for disability insurance applicants to pay attention to the information provided during the underwriting process. Misrepresentation of information may cause quite an issue if you file a claim within two years of the policy being issued.
