Life insurance will not pay a claim if, after two years, the policy was issued without a valid insurable interest at the time of purchase; most jurisdictions require that interest to exist when the contract is formed, and many policies include a contestability period that allows denial for misrepresentation.
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Legal requirement for insurable interest
Most states and countries mandate that the policyholder have a genuine financial or emotional stake in the insured's life when the contract is signed. Without this, the contract is considered voidable, and the insurer can refuse payment.
Contestability period and misrepresentation
Insurance contracts typically include a two‑year contestability period. During this time, the insurer can investigate the application for false statements. If it discovers that the applicant lacked insurable interest, the claim can be denied even after two years.
Typical policy language
Standard clauses state that the insurer may deny benefits if the policy was obtained fraudulently, if the insured died within the contestability period, or if the insurer proves no insurable interest existed at inception.
Exceptions and practical outcomes
Some policies may still pay if the lack of interest was unintentional and the insurer cannot prove fraud, but courts often side with the insurer when the statutory requirement is clear. Policyholders should verify insurable interest before purchasing to avoid denied claims.