Texas General Lines — Life, Accident, Health and HMOHealth InsuranceHard
A client is applying for a new individual health insurance policy. The insurer discovers that the client intentionally withheld information about a pre-existing heart condition during the application process. Which policy provision would most likely allow the insurer to deny a claim or void the policy based on this discovery?
- AConformity to State Statutes
- BIncontestable Clause
- CMisstatement of Age or Sex
- DLegal Actions
Show answer & explanationAnswer & explanation
Correct answer: B. Incontestable Clause
The Incontestable Clause in health insurance provides a time limit, typically two years, after which the insurer cannot void a policy or deny a claim based on misstatements in the application, unless it was a fraudulent misstatement. For fraudulent misstatements, the policy can often be contested beyond this period or even voided.
Why the other options are wrong
- A. Conformity to State Statutes ensures the policy adheres to state laws, not for denying claims based on misrepresentation.
- C. Misstatement of Age or Sex allows the insurer to adjust benefits based on the correct age or sex, not to void the policy for medical conditions.
- D. Legal Actions specifies the time frame within which legal action can be taken against the insurer.
Incontestable Clause (Health)
A provision that prevents an insurer from voiding a policy or denying a claim based on misstatements in the application after a certain period (e.g., 2 years), unless fraud is involved.
- Protects policyholders from arbitrary claim denials after a period
- Fraudulent misstatements may allow contestability beyond the period
- Time limit usually starts from policy issue date
Memory trick: The 'Incontestable' clause ensures policy 'In'tegrity after a set 'Time'.