How to Avoid a Declined Life Insurance Payout to Your Beneficiary during the 2 Year Contestability Period.

A common clause found in most insurance policies is the 2yr Contestability Period.


Insurance companies reserve the right to re-examine or investigate your policy in the first two years.  When applying for life insurance there are many questions on the application asking about your health, lifestyle choices and the health of your immediate family (meaning your parents and siblings only)  These are typically “Yes” or “No” questions with extra room to explain or fully answer questions that are answered with a “YES”.

It is quite common for the insurance company to also send a nurse or Healthcare professional to your home to take Vitals like height, weight, blood pressure as well as blood and urine samples.  The amount of information they need usually depends on your age and the amount of insurance you are applying for.  All the information is collected and used to underwrite the policy.  Insurance companies need this information to be able to understand the risk of insuring you.  Once they have made a decision and all goes well, they will make you an “offer to insure”. You are then covered once you accept the offer and your first month premium is paid.  You will remain covered for the type and term you have applied for as long as you continue to pay your monthly or annual premiums.


Insurance companies have the right to reinvestigate how you answered the questions on the application anytime during the first 2 years.  If the insured dies from a non accident–meaning they died as a result of a medical reason in the first 2 years of the policy they will reopen your file and look at how you answered the questions on the application.  Insurance companies are all about assessing the risk of insuring a person.

If someone was that sick or such a high risk that death was immanent in the first few years they would definitely have taken a pass on insuring you.  This strategy keeps premiums lower overall and maintains the insurance company’s bottom line.  They don’t want to be in the business of collecting a few hundred dollars in premiums for a Term 20 policy and then paying out 500,000 in the first year or two.  It just doesn’t make good business sense.  This is why they are so diligent when underwriting the policy.  They ask a lot of questions, send a nurse and really take a detailed look into your health, your lifestyle choices (do you smoke or engage in extreme sports to name a few) and they even ask about your immediate family and their overall health.  

So if someone dies during that 2yr window they reserve the right to have a second look at your file.  Did you disclose everything? Were you diagnosed with Cancer and neglected to mention it?  Were you having heart issues?   Before paying out the death benefit to your named beneficiary in the insurance policy they will contact your doctor, request your medical file and pour over it to see and confirm the answers on the application were answered honestly.

Misleading an insurance company in an attempt to get better rates or approval by  not fully disclosing health issues, lifestyle choices etc is called Material Misrepresentation.  During this investigation, if the insurance company discovers there has been misrepresentation they can cancel your coverage or deny a claim and withhold a benefit payment to your beneficiary.

Here is an example of a 2yr contestability clause found in an RBC Insurance, Term 20 Life Insurance policy:


We have the right to contest the validity of this policy, or the payment of the Death Benefit or any other Policy benefits, if you or any Life Insured under this Policy have incorrectly stated, misrepresented or failed to disclose a material fact in the application for insurance, or any medical examination, or in any written or electronic statements or answers provided as evidence of insurability

Except in the case of fraud, we will not contest this Policy for misrepresentation after it has been in force for two (2) years during the lifetime of every Life Insured, from the later of the Coverage Date or the last date of reinstatement. If the Designated Life Insured dies during this two (2) year period, we can contest at any time.

When there is an indication or fraud, we can declare this Policy void at any time.  Fraud includes but is not limited to a material representation of the smoking habit of any Life Insured.  If the Policy is declared void for fraud, we will not refund Premiums paid.”


It is very simple to make this clause a non-issue when purchasing a life insurance policy.  Disclose everything you can possibly think of with regards to your health and answer all questions you are asked honestly.  Give the underwriter all the details and let them decide whether or not it is important “yes I broke my leg and was in the hospital when I was 7” or yes I did have some tests a few years back but I don’t really remember what they were for” If the underwriter wants more information they will contact your doctor directly.  The important thing is, you were honest and disclosed everything.

Here is a very interesting article called “The Life Insured’s Duty to Disclose and the Consequences of Material Misrepresentation and Non-Disclosure”  written by John A. Vamplew, a lawyer at Whitelaw Twining Law Corporation in Vancouver.  There are some very interesting cases that actually went to trial and the resulting decisions after trial.

Disclaimer: As we are not lawyers, this blog post should not be misconstrued as giving legal advice.  Do not rely on the information in this post as an alternative to legal advice from your lawyer or professional legal service provider and you should always consult your lawyer about a specific legal matter.