New York Child Abuse Identification and Reporting Practice Exam

Which circumstance is exempt from the incontestability provision in insurance policies?

1. Misstatements made at application

2. Fraudulent misstatements

3. Errors in documentation

4. Late premium payments

The correct answer is: Fraudulent misstatements

The incontestability provision in insurance policies is designed to protect policyholders by preventing insurers from challenging the validity of a policy after a specified period, typically two years, provided that the premiums are being paid. This provision, however, does not apply in cases of fraudulent misstatements. When an applicant intentionally provides false information or omits crucial facts with the intent to deceive the insurer, the insurer retains the right to contest the policy at any time. This is because fraudulent actions undermine the basis of the insurance contract and the trust that is essential in the relationship between the insurer and the insured. Misstatements made at application, errors in documentation, and late premium payments do not involve the level of intent and deception found in fraudulent misstatements, thus making the incontestability clause applicable in those cases after the specified period.