Texas General Lines — Life, Accident, Health and HMOTexas Statutes and Rules Specific to Life InsuranceEasy
A life insurance policy in Texas contains an Incontestability Clause. The insured dies three years after the policy was issued. The insurer discovers that the insured misrepresented their medical history on the application, which would have led to a denial of coverage. What is the insurer's most likely course of action?
- ADeny the claim and refund all premiums paid.
- BPay the full death benefit to the beneficiary.
- CReduce the death benefit to what the premiums would have purchased if the true facts were known.
- DInitiate legal action to void the policy due to fraud.
Show answer & explanationAnswer & explanation
Correct answer: B. Pay the full death benefit to the beneficiary.
The Incontestability Clause in Texas life insurance policies generally prevents an insurer from denying a claim due to misrepresentation after the policy has been in force for two years, even if the misrepresentation was material. Since the insured died three years after issue, the incontestability period has passed.
Why the other options are wrong
- A. Denial and refund would only be possible if the death occurred within the incontestability period.
- C. This action is typically associated with the Misstatement of Age or Sex clause, not the Incontestability Clause.
- D. Legal action to void for fraud is generally limited by the incontestability period, except in extreme cases, which isn't described here.
Incontestability Clause (Life Insurance)
A provision in a life insurance policy that prevents the insurer from denying a claim due to misstatements or omissions on the application after the policy has been in force for a specific period (usually two years), except for non-payment of premiums.
- Protects beneficiaries from post-death claims denials.
- Typically a two-year period in Texas.
- Promotes policy stability and certainty.
- Does not apply to non-payment of premiums.
Memory trick: Incontestability: Two years pass, policy's a solid mass.