Tuesday, July 27, 2010

New Jersey Life Insurance Contestability Rules

The New Jersey Department of Banking and Insurance oversees the insurance, banking, and real estate industries in the Garden State.

Any company wishing to conduct business and sell insurance in New Jersey must first file an application with the DOBI, and any agent wishing to represent an insurer must fulfill educational requirements and complete a state-approved examination. In order for a carrier’s products to gain approval for sale, certain features and characteristics of the contract must conform to New Jersey legislation.

New Jersey Statute


New Jersey’s insurance statute 17B:25-4 specifically discusses contestability. If an insured person dies within the contestability period, the carrier has every right to investigate the death to search for fraud or misrepresentation.

However, after the contestability period has expired, the carrier has no right to refuse payment of claims, even if obvious fraud or misrepresentation is evident.

Contestability Period Duration


In New Jersey, the contestability period lasts for two years from the date a life insurance policy become active. If that policy remains in force for two consecutive years, death benefits cannot be denied, revoked or otherwise restricted regardless of the manner in which death occurred.

Additionally, basic administrative changes to the policy have no effect on the contestability period; changes that require the carrier to assume additional risk or financial liability, however, may begin a brand new two-year contestability period.

Consequences of Fraud


If an insured person dies within the first two years after obtaining life insurance, and the carrier determines that intentional misrepresentation or fraud was committed, the policy death benefit may be denied or withheld from beneficiaries.

The carrier will instead pay an amount equal to the benefit that would have been purchased had they been made aware of the unknown factors. If, however, the missing information would have resulted in the declination of coverage entirely, the carrier is obligated to return only the premium paid by the insured person.

References


NJlifeinsurance: Life Insurance - The Complete History
Onecle: N.J. Statute 17B:25-4

Resources (Further Reading)


New Jersey Department of Banking & Insurance: Life and Health Bureaus




This article is a Twisted Nonsense Exclusive! (07/27/2010)