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Question: T​‌‍‍‍‌‍‍‌‍‌‌‌‍‍‌‍‍‌‌‍​he normal rule is that after a specified period of time, insurance companies cannot contest the validity of a life insurance policy for any reason except nonpayment of premiums. Do you think this rule encourages people to hide facts​‌‍‍‍‌‍‍‌‍‌‌‌‍‍‌‍‍‌‌‍​ from the insurance company until their policy is incontestable?

26 Oct 2022,3:19 AM

 

T​‌‍‍‍‌‍‍‌‍‌‌‌‍‍‌‍‍‌‌‍​he normal rule is that after a specified period of time, insurance companies cannot contest the validity of a life insurance policy for any reason except nonpayment of premiums. Do you think this rule encourages people to hide facts​‌‍‍‍‌‍‍‌‍‌‌‌‍‍‌‍‍‌‌‍​ from the insurance company until their policy is incontestable? And is it ethical to hide facts that would otherwise invalidate an insurance policy? Support your answer with an example. What do you think is the reason for this rule​‌‍‍‍‌‍‍‌‍‌‌‌‍‍‌‍‍‌‌‍​?

Expert answer

 

Yes, the rule does encourage people to hide pertinent information from their insurance company. The main reason for this is that people are afraid of having their policy canceled or premiums increased if the insurance company finds out about certain information. For example, if an applicant has a family history of heart disease, they may be reluctant to disclose this to their insurance company for fear of being denied coverage or having to pay higher premiums. While it is understandable that people would want to protect themselves in this way, it ultimately is not in their best interests to withhold information from their insurer. If something happens and the policyholder needs to make a claim, the insurance company may use the fact that they were not given all of the relevant information as grounds to deny the claim. In the end, it is always better to be upfront and honest with your insurance company, even if it means that you may have to pay slightly higher premiums.

 

The normal rule is that insurance companies cannot contest the validity of a life insurance policy for any reason except nonpayment of premiums after a specified period of time. This rule may encourage people to hide facts from the insurance company until their policy is incontestable. If an insured person were to die shortly after the policy became incontestable, the beneficiaries might receive a much larger payout than they would have if the truth had been known from the start. While this could be seen as an advantage of the incontestability rule, it could also be seen as encouraging people to deceive insurers. The normal rule is that insurance companies cannot contest the validity of a life insurance policy for any reason except nonpayment of premiums after a specified period of time. This rule may encourage people to hide facts from the insurance company until their policy is incontestable. If an insured person were to die shortly after the policy became incontestable, the beneficiaries might receive a much larger payout than they would have if the truth had been known from the start. While this could be seen as an advantage of the incontestability rule, it could also be seen as encouraging people to deceive insurers.

 

The normal rule is that insurance companies cannot contest the validity of a life insurance policy for any reason except nonpayment of premiums after a specified period of time. This rule may encourage people to hide facts from the insurance company until their policy is incontestable. If an insured person were to die shortly after the policy became incontestable, the beneficiaries might receive a much larger payout than they would have if the truth had been known from the start. While this could be seen as an advantage of the incontestability rule, it could also be seen as encouraging people to deceive insurers.

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