Certified Financial Consultant (CFC) Practice Exam

After how many years can the validity of coverage under a life insurance policy typically not be contested, except for nonpayment of premium?

1. 1 year

2. 2 years

3. 3 years

4. 5 years

The correct answer is: 2 years

The validity of coverage under a life insurance policy is typically not contestable after two years, except in cases of nonpayment of premiums. This provision is known as the "incontestability clause." The main purpose of this clause is to provide assurance to the policyholder that after a certain period, usually two years, the insurance company cannot void the policy for reasons such as misrepresentation or fraud unless there is nonpayment of premiums. This allows policyholders to feel secure in their coverage, knowing that once they have maintained their policy for this duration, they will be protected against most challenges regarding the validity of the policy. The two-year timeframe serves as a balance between the insurance company's need to investigate and manage risk and the policyholder's right to security in their insurance coverage. While the specific period can vary among insurers and jurisdictions, two years is commonly recognized in many U.S. states as the standard period for contestability in life insurance policies.