New Jersey Life Producer Practice Exam

What is the purpose of the incontestability clause in a life insurance policy?

1. To restrict claims to only the first year

2. To prevent the insurer from denying claims after a certain period

3. To allow for premium adjustments any time

4. To guarantee lifetime coverage

The correct answer is: To prevent the insurer from denying claims after a certain period

The purpose of the incontestability clause in a life insurance policy is to prevent the insurer from denying claims after a specified period, typically two years from the date the policy goes into effect. This clause ensures that once the policy has been in force for this duration, the insurer cannot challenge the validity of the policy or rescind it based on misstatements or omissions made by the insured in the application. This provides a level of security and peace of mind to the policyholder and beneficiaries, as they can be confident that the policy will remain effective even if questions arise about the application details after the incontestability period. This clause helps to solidify the insured's rights and reinforces the principle of good faith in the insurance contract, ensuring that once the period elapses, the insurer must honor the terms of the policy regardless of any issues that may have arisen during the initial application process.