The two-year contestability period: when a Canadian insurer can deny a claim for misrepresentation

For the first two years a life insurance policy is in force in Canada, the insurer can void (rescind) it if the application contained a material misrepresentation or non-disclosure, meaning an inaccurate or missing answer that would have led a reasonable insurer to refuse the policy or charge more, even if the omitted condition had nothing to do with the cause of death. After two years, the policy can generally be contested only for fraud. This rule comes from the provincial Insurance Acts outside Quebec and from the Civil Code of Québec in Quebec, and similar rules apply to disability and critical illness policies. Most policies also contain a two-year suicide exclusion. A misstated age is handled differently: the benefit is adjusted to what the premium paid would have bought, rather than the policy being cancelled. If you discover an error in your application, telling the insurer now is far better than leaving it to be found at claim time.

This guide is part of the overview of common life and disability insurance mistakes.

The rules at a glance

What "material" means

A fact is material if it would have influenced a reasonable insurer's decision to issue the policy or the price, not whether it caused the claim. Common examples:

• an undisclosed diagnosis such as sleep apnea, depression treatment, diabetes or a heart murmur;
• tests ordered or pending at the time of application;
• prescriptions not listed;
• tobacco, nicotine or cannabis use when the question asked about it;
• hazardous activities or planned travel;
• a prior application refused or rated by another insurer.

Worked scenario (illustrative). Ravi bought a $400,000 Term 20 policy. He did not mention he had been prescribed medication for high blood pressure a year earlier. Eighteen months later he dies in a car accident. The insurer reviews his medical records, finds the prescription, and its underwriting manual shows he would have been issued at a rated premium, 50% higher. Because the policy is within two years and the fact was material, the insurer can rescind the policy and return the premiums, roughly 18 x $40 = $720, instead of paying $400,000. In practice, insurers and courts look at whether the question was clear and whether the applicant understood it; disputes over ambiguous questions are common. If Ravi had died 26 months after issue, and there was no evidence of fraud, the claim would generally have been paid.

Quebec

The Civil Code of Québec has its own rules for insurance of persons. The policyholder and the insured must declare all facts known to them that are likely to materially influence the insurer; the insurer can seek to annul the contract for misrepresentation or concealment, but after the policy has been in force for two years it can do so only in case of fraud. Misstatement of age leads to a proportional adjustment of the benefit. Suicide in the first two years is generally excluded. Review the AMF's guidance or ask a lawyer or notary for a specific dispute.

Disability and critical illness policies

Individual disability and critical illness policies also have contestable periods and pre-existing condition clauses. For group LTD, there are usually no individual health questions for amounts up to the plan's non-evidence maximum, but:

• amounts above that maximum, or coverage applied for late, need evidence of insurability, and those statements can be contested;
• group plans often have a pre-existing condition exclusion, for example for conditions treated in the 90 days before coverage started that cause disability within the first 12 months.

If you realize your application was wrong

1. Write to the insurer with the correct information and ask how it affects the policy.
2. The insurer may keep the policy as is, charge a higher premium, add an exclusion, or in serious cases refuse to continue it.
3. Keep the correspondence with the policy documents.
4. If the insurer cancels, apply elsewhere with complete answers before the policy ends.

That conversation is uncomfortable, but it costs a premium adjustment, not a claim.

If a claim is refused for misrepresentation

• Ask for the specific question, the answer given, and the underwriting rule the insurer relies on.
• Request your claim and underwriting file.
• Check whether the policy had been in force for two years at the date of death or disability, counting from the date it took effect or was last reinstated.
• Consider whether the question was ambiguous, whether the advisor recorded your answer accurately, and whether the insurer already knew the fact.
• Use the insurer's complaint process, then the OmbudService for Life and Health Insurance. Large misrepresentation denials are often worth a lawyer's review. See what to do when an LTD claim is denied for the general appeal path.

Frequently asked questions

Does the two-year period restart if I change my policy?

If you apply for more coverage, convert with new evidence or reinstate a lapsed policy, statements in that new application have their own two-year period. A pure conversion without new medical evidence normally does not restart it for the original coverage.

Can the insurer check my medical records after I die?

Yes. The application includes your authorization for the insurer to obtain medical and other information to assess claims, and contestable claims are routinely investigated.

What if the advisor filled in the wrong answer?

You are still responsible for what you signed, but an advisor's error can be relevant to a dispute and to a complaint against the advisor with the regulator or, in Quebec, the Chambre de la sécurité financière.

Is the suicide clause the same everywhere?

Most Canadian policies exclude suicide within two years of issue or reinstatement and refund premiums. Read your policy.

Sources

• Canadian Council of Insurance Regulators — links to provincial insurance regulators
• LégisQuébec — Civil Code of Québec, insurance of persons
• Chambre de la sécurité financière — Quebec advisors' professional conduct
• OmbudService for Life and Health Insurance — complaints after the insurer's final position
• Related: beneficiary designations and life insurance premium factors