What is the purpose of the 2-year contestable period in life insurance policies?

The purpose of the two-year contestable period in life insurance policies is primarily to permit insurers to void or alter the policy for material misrepresentations. During this period, the insurance company has the right to investigate the information provided in the application for insurance. If it finds that the policyholder made any significant misrepresentations about their health or lifestyle, the insurer can deny claims or rescind the policy altogether.

This period serves to protect insurers against fraud or misinformation that could lead to significant financial losses. After the two-year period, the insurance coverage typically becomes more secure, and the insurer cannot contest the policy based on misrepresentation, except in cases of outright fraud. This provides a level of security for policyholders, knowing that after two years, their claims will generally be honored regardless of the initial application details.