Life Insurance Incontestability Provision
When applying for a life insurance plan an individual (or business in the event of a key man life insurance policy) must disclose, in utmost good faith, all material facts within the application. A material fact is any fact which may affect the insurer’s decision to offer coverage.
Failure to act in utmost good faith can void the life insurance contract under Hong Kong law, and consequently this is where most disputes about the validity of Hong Kong life insurance plans are cantered. For example, the policyholder may have omitted mention of a specific medical condition or lifestyle choice (such as smoking) which would have caused the insurer to decline coverage or charge a higher premium.
What does the Incontestability Provision Do?
An incontestability provision on a Hong Kong life insurance plan states that once the policy has been in force for a certain length of time the insurer cannot dispute the validity of the contract. Under normal market practice plans cannot usually be contested once they have been in force for a period of 2 or more years.
However, for clarity many incontestability provisions will state that the 2 years waiting period before the incontestability provision comes into force must be during the insured individual’s lifetime.
This is to prevent a beneficiary from submitting a claim which would have otherwise been contested at the end of the incontestability period, when the insured individual may have died a significant amount of time before.
In the event of instances of fraud, such as purchasing a life insurance plan for the specific intent of laundering money, all contracts can be contested. Under Hong Kong law fraud can always be contested despite the wording of a specific policy.
Based on the above it can be said that if an individual practices utmost good faith and holds a policy for more than 2 years without using the plan for any fraudulent purposes, then the policy cannot be rescinded by the insurer – it is incontestable.
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