Limitations on New Life Insurance Policies

Aside from the difficulty in comparing policies when replacing insurance policies, there are some other concerns as well. When a life insurance policy is replaced, there are almost always two disadvantages: first, there is the creation of a new suicide clause which begins with the writing of the new policy. If you have owned an insurance policy for over two years, it would pay off in the event of a suicide. The new replacing policy, however, will not cover suicide until the new policy has been in force again for over two years.

The second problem with a new policy is the new contestability period. If you misrepresent your health history -- like forgetting to tell the insurance company you have cancer-- it is still likely the insurance company will pay benefits if you die after owning the policy for over two years. These two years represent the incontestability period. A new policy will start a new incontestability period. To avoid problems with contestability, make absolutely sure you can qualify for the new insurance policy, while making full disclosure about your medical history. Keep in mind that the incontestability provision does not mean that an insurance company can avoid paying a death claim if you die in the first two years. However, they can avoid paying the death claim if you die in the first two years and you have materially misrepresented your medical history.