California Life and Health Insurance Practice Exam

What ensures that a life insurance policy cannot be rescinded after being active for two years?

1. Reinstatement clause

2. Incontestability clause

3. Grace period clause

4. Contestability period clause

The correct answer is: Incontestability clause

The correct answer is the incontestability clause. This clause is a standard provision in life insurance policies that states once a policy has been in force for a specific period, typically two years, the insurer cannot contest or void the policy based on misrepresentations, omissions, or errors made by the policyholder during the application process. This provision protects policyholders by providing them with assurance and stability, allowing them to know that, barring fraud, their policy cannot be disputed after that period. It effectively limits the insurer's ability to deny a claim based on issues that might have been present at the time of application, giving policyholders peace of mind in the security of their coverage. The reinstatement clause is related to bringing a lapsed policy back into force, but it does not address the issue of contestability. The grace period clause allows the policyholder some time to pay overdue premiums without losing coverage, and while the contestability period is related to how long an insurer has the right to contest a claim, it is not the same as the incontestability clause, which provides that after two years, the insurer cannot contest the policy at all.