A recent case involving a denied $200,000 life insurance policy issued by Transamerica shows how aggressively insurers use the contestability period to avoid paying valid claims. After the insurer denied the claim, prompt legal intervention challenged the basis of that decision and resulted in full payment to the beneficiary in just 11 days.
Cases like this highlight how contestability provisions are often misused and how quickly a denial can unravel when the insurer’s arguments are scrutinized.
What the Contestability Period Means for Life Insurance Claims
Most life insurance policies contain a contestability clause that allows the insurer to investigate claims made within the first one or two years after the policy is issued. During this window, the insurer reviews the original application to determine whether any statements were inaccurate or incomplete.
If the insurer believes the application contained a misstatement that affected underwriting, it may attempt to rescind the policy entirely. Instead of paying the death benefit, the insurer typically offers to refund premiums paid. For beneficiaries, this often comes as a shock, especially when the alleged issue has no clear connection to the cause of death.
Once the contestability period expires, insurers generally must pay claims unless they can prove intentional fraud. That is a much higher legal burden and one insurers often cannot meet.
How Insurers Stretch the Definition of Material Misrepresentation
Not every error on a life insurance application justifies rescinding a policy. A misstatement is considered material only if it would have changed the insurer’s decision to issue coverage or affected the premium.
Insurers often argue that the following omissions or inaccuracies are material:
Failure to disclose significant medical conditions
Incorrect statements about tobacco or alcohol use
Omission of hazardous activities or hobbies
Inaccurate reporting of occupation, income, or background information
In reality, many of these issues would not have changed the underwriting outcome. Insurers frequently rely on broad assumptions rather than concrete underwriting evidence to support a denial.
How the Transamerica Denial Was Challenged
In the Transamerica case, the insurer denied the claim based on an omitted medical condition listed in the insured’s history. The company asserted that this information would have altered the underwriting decision and justified rescinding the policy.
A closer review showed otherwise. Medical records and underwriting guidelines demonstrated that the condition had minimal impact on the insured’s overall risk profile. There was no indication that disclosure would have resulted in a denial or different premium.
Once this evidence was presented, the insurer reversed course. The denial was withdrawn and the full $200,000 death benefit was paid to the family within days.
Why Contestability Period Denials Are Often Vulnerable
Many contestability based denials rely on assumptions rather than proof. Insurers may fail to show that a misstatement was truly material or that it had any connection to the cause of death. In some cases, they also ignore their own underwriting standards.
When these denials are challenged quickly and strategically, insurers often choose to pay rather than defend a weak position.
Final Thoughts
The contestability period gives life insurance companies leverage, but it does not give them unlimited power. A denial during this period does not automatically mean the insurer is right.
As the Transamerica case shows, when the alleged misstatement is examined carefully and tested against underwriting reality, many contestability denials collapse fast. Beneficiaries facing these denials should understand that a prompt challenge can make all the difference.