What is a contestable period in insurance?
The contestable period is the period in which the insurer, usually the insurance company itself, has the right to cancel the policy or refuse insurance claims. if they are the insurance company finds that the customer, participant, insured party, or policy holder provides information that is not in accordance with reality to the insurance company in the process of requesting insurance coverage. This term in Indonesian is also known as “trial period”. For insurance companies, the right to refuse claims during the contestable period is very important. This relates to the burden they have to bear from the possibility that customers lie about their condition, so that insurance companies charge insurance costs that are not commensurate with the risk.
The length of the Contestable Period
This trial period or contestable period varies in length, there are insurance companies that provide a trial period of less than one year and some are more than one year. Generally this trial period lasts for 2 years. It is rare for an insurance company to have a contestable period of less than 2 years. The longer the trial period the more profitable the insurance company is. Because at this time the insurance company can cancel the customer’s insurance participation and refuse insurance claims. It is also useful as a protection for insurance companies from fraud committed by their customers.
Consequences of the Insurance Contestable Period
This is a trial period, during which the insurance company can cancel the customer’s insurance participation, and even reject the claims submitted by their customers. This refusal is carried out because the customer is proven to have provided false information or made up information so that participation in an insurance product can be accepted. Whereas insurance is a service company for risk control, not a company that bears the burden of its customers. Risk means something that might happen, not something that has already happened. If something is certain, the insurance company is not needed, and they will refuse the applicant’s participation because it is detrimental to the insurance company. So the consequence of the act of providing incorrect information by the customer is the cancellation of the customer’s insurance participation, and the insurance company has the right to refuse the customer’s claim.
Customers who are caught lying in the provision of their data are not always canceled their participation in insurance. Usually the insurance company will ask the customer to increase their premium. So that the customer’s insurance costs are in accordance with the risks covered by the insurance company. For errors that are unintentional and do not have a major impact, such as mistakes in spelling names, writing parents’ names, the age difference given to the insurance company and the actual age that is not much different, the insurance company asks the customer to correct it.
Purpose of the Contestable Period
This trial period aims to protect insurance companies from fraudulent acts of their customers. If there is no constatable period, the insurance company directly has an obligation to protect the risks that its customers have. Though the determination of the cost of this insurance is strongly influenced by the information from the insurance applicant. Insurance costs will increase according to the risk covered by the insurance company. If the customer lies, the insurance company bears a greater risk than the fees charged to their customer. To prevent this, a constestable period is enforced in insurance products sold by insurance companies.
The contestable period is the time given to the insurance company to cancel the policy. The provisions of this constestable period relate to the application of the principle of good faith or utmost good faith in insurance.
The contestable period or often termed a probationary period, generally lasts two years. Within that period the insurance company has the right to investigate and question the veracity of the data and information provided by the policy holder or the insured to determine the next decision on the policy contract.
The Principle of Good Faith in Insurance
Insurance, like agreements in general, is bound by the principle of consensuality. The agreement is considered valid if it fulfills four conditions. Namely, there is an agreement, the subject who makes a legally competent agreement, regarding a certain object, and for a lawful cause.
The insurance agreement is valid from the time the policy contract is made and the insured pays the premium for the first time. However, the insurance company as the insurer is given time to ensure that the data and information provided by the policy holder or the insured in the insurance application is correct.
Based on the principle of good faith, every policy holder or insured is obliged to provide actual data and information about the object being insured. For example, regarding a disease that has been suffered before becoming a participant in health insurance or the actual value of the object of coverage in property insurance.
Insurance Cancellation During the Contestable Period
Good faith is included in the conditions for the validity of the agreement ‘a lawful cause’. This concerns the insured object. Violation of these conditions results in the agreement being null and void or deemed to have never existed.
If the insurance company during the contestable period finds out that the data and information provided by the insured regarding the object of coverage is incorrect, the insurance company can cancel the policy. Insurance companies are exempt from paying claims or returning premiums that have been paid by the insured.
The trial period for this procedure varies, some are months, but some are up to two years.
The purpose of this procedure, as I explained above, is to avoid criminal acts of insurance crime, by having the possibility that the customer will continue to use the insurance service, or cancel it at a later date. This is important to do, because it has a high risk to the insurance company. With regard to money, people who have evil intentions, of course, try to have loopholes, how to commit fraud in this insurance sector, can be seen in the news, or in films based on true stories, there are lots of them.
Goals of the Contestable Period
Prevent losses for insurance companies
Life insurance products usually offer contracts with varying terms ranging from 5 years to even 20 years. When the policyholder dies before the contract period ends, the policy issuer (insurance company) will pay the policyholder’s family (the insured) a large sum of money exceeding the total premium paid. But if it turns out that until the contract period ends it turns out that the policyholder is still alive, the insurance company will return all premiums that have been paid to the policyholder.
The concept is simple, healthy people (no history of dangerous diseases and healthy habits) tend to live longer than those who are unhealthy (have a history of dangerous diseases and unhealthy habits). The policy of the insurance company (policy issuer) is to offer insurance products to those who are healthy. So it is expected that all policy holders remain healthy until the end of the contract period and the insurance company does not have to pay a large sum insured to the heirs of the insured.