South Carolina Life and Health Practice Exam

When can a policy no longer be cancelled for nonfraudulent misstatements after its date of issue?

1. 1 year

2. 2 years

3. 3 years

4. 5 years

The correct answer is: 2 years

A life insurance policy typically cannot be cancelled for nonfraudulent misstatements made by the insured after the policy has been in force for a specified duration, which is two years in many jurisdictions, including South Carolina. This period is designed to protect policyholders from losing their coverage due to innocent mistakes or errors in the application process, as long as those mistakes are not fraudulent. The two-year contestability period allows insurers to thoroughly investigate claims and assess the accuracy of the information provided by applicants. After this period, the insurer generally must uphold the policy, regardless of any misstatements that have been identified, unless those misstatements are proven to be intentionally deceptive. Hence, after two years from the date of issue, a policy can no longer be cancelled for nonfraudulent misstatements, ensuring that policyholders have a degree of security in their coverage.