The Incontestable Clause

The severity of warranties is also greatly alleviated by the general practice of the companies making their policies incontestable after one or two years following the date of issue, except for the non-payment of premiums. So-called "incontestable clauses" usually read to the following effect: "This policy shall be incontestable after one year from its date except for non-payment of premium." Such clauses represent a clear illustration of the modern tendency on the part of the companies to liberalize their contracts, and much can be said in their favor. From the standpoint of the insured and the beneficiary such clauses remove the fear of law suits especially at a time namely, after the death of the insured when it may be difficult for the beneficiary successfully to combat with competent testimony the company's charge of a violation of the contract. From the standpoint of the solicitor the existence of the clause increases business by making the policy attractive to the public. Again, from the standpoint of public policy it is undesirable to have widows, children or other dependents protected by a contract which throughout the lifetime of the insured may be subject to forfeiture., possibly for trivial violations, which forfeiture might remain unknown until the death of the insured., and thus leave the dependents without the protection which it is the essential purpose of life insurance to give. Moreover, if policies can be contested at the time of the insured's death, the issue must be determined in the courts, thus involving long delay in the settlement of the claim at the very time when the need for speedy payment is greatest. Considerations like these have, no doubt, been responsible for the requirement of in contestable clauses in life-insurance policies by the statutes of no less than eleven states.

In view of the aforementioned reasons the incontestable clause should be regarded as a conspicuous feature of 'the policy contract, and may be considered as similar to a short statute of limitation. By inserting this policy provision the company undertakes to make all necessary investigations concerning the good faith and all other circumstances surrounding the insured's application within the time limit stipulated in the clause. The company also definitely agrees not to resist the payment of the claim if there has been no violation of the contract during the first year (or whatever the time limit may be) following the issuance of the policy and if during that time the company has taken no action to rescind the contract. It is understood, however, that the clause does not waive any of the remedies or provisions which the contract provides must be complied with by the claimant following the death of the insured.

The wording of the clause would seem to make the policy incontestable for any reason whatsoever, except for non-payment of the premium or such other particulars as may be stipulated in the policy.11 In fact the courts have shown a decided tendency to hold uppermost in mind the interests of innocent beneficiaries, and to this end have quite generally adopted the rule that the clause prevents the insurer from setting up a defense of fraud, suicide or death at the hands of justice. Lack of insurable interest, however, has been considered a necessary exception. Such an interest, as will be explained later, is necessary owing to considerations of public policy. Therefore, it has been held that the absence of such an interest will cause the policy to fall even though it contains an incontestable clause.