Non-Contestability Clause

What Is a Non-Contestability Clause?

A non-contestability clause, also known as an incontestability or no-contest clause, is a provision in a person's will that threatens to redistribute inheritance if beneficiaries contest the will. The goal is that such a stipulation will dissuade a less-favored child or heir to challenge a will in court, and to minimize that challenger's chances of winning if a case is brought.

Contestability also comes up in insurance claims, where an insurer may refuse to acknowledge a claim until some initial period has passed from the purchase of the policy.

Understanding Non-Contestability Clauses

Non-contestability clauses in wills are intended to keep order during the settlement of an estate by punishing heirs who attempt to contest clauses in wills. The clause includes legal language stating that any inheritor who takes a will to court can forfeit any bequests. It can be an unpalatable option, to be sure, but it might mean the best chance of keeping a will intact.

The effectiveness of these measures can be limited, as courts typically will allow beneficiaries to contest wills despite the presence of a non-contestability clause. Wills are part of the probate process and therefore subject to state law. Some states, in turn, refuse to enforce non-contestability clauses. In those states, a court decides whether the party contesting the will has a legal case. If they do not, these states require the courts to proceed with the will's instructions without redistributions governed by non-contestability clauses.

Other states enforce non-contestability clauses in cases where the courts deem the contest legitimate, so as not to discourage potential heirs from exercising their legal rights. Check your state’s laws before considering this option. 

Alternatives to Non-Contestability Clauses

Individuals involved in estate planning and seeking an alternative to ensure their estates get distributed as they desire might look toward the use of a trust. Drawing up a trust can provide more protection and a simpler vehicle for distributing an estate's holdings. For one thing, assets placed in trust typically bypass the probate process entirely.

To ensure more complete protection, an individual could pair a trust with a pour-over will, which simply moves any remaining assets in the estate into an existing trust. An appointed trustee will usually ensure that the trust's assets get distributed appropriately, as laid out in the trust documents.

Contestability Periods in Life Insurance

In the context of life insurance, contestability refers to an insurance company's right to refuse to pay out on a claim due to inaccuracies in an insurance application. Most policies maintain a window during which the insurance company can deny a claim if it finds a material falsehood in an application, whether that falsehood has anything to do with the cause of death or not. The rationale behind such a move suggests material misrepresentations on a life insurance application may cause an inaccurate premium or death benefit calculation.

Most contestability periods last between one and two years after a policy goes into effect. However, lapses caused by nonpayment of premiums may cause a new contestability period to begin. If an individual dies during the contestability period, the ultimate payment of a death benefit may depend upon whether or not the insurance company finds any issues with the application. Insurance companies that find material misinformation can also make adjustments to premiums or to the death benefit.

Non-contestability clauses in insurance policies help protect insured people from firms who may try to avoid paying benefits in the event of a claim. While this provision benefits the insured, it cannot protect against outright fraud. Lying to an insurance company with an intention to deceive can result in the cancellation of coverage or even criminal charges. In most states, if policyholders lie or misstate facts on their application or submit a fraudulent claim, such a clause will be voided.