The Office of General Counsel issued the following informal opinion on February 6, 2002, representing the position of the New York State Insurance Department.
Re: Incontestability of Individual Life Insurance Policies and Individual Long Term Care Insurance Policies
Questions Presented:
1) After two years, even if there is a misrepresentation on a life insurance policy application, does the policy still have to be paid?
2) After two years, even if there is a misrepresentation on a long term care insurance policy application, does the policy still have to be paid?
Conclusions:
1) N.Y. Ins. Law § 3203(a)(3) (McKinney 2000) provides that an individual life insurance policy must contain a provision that the policy shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue. However, whether or not an individual life insurance policy is incontestable after being in force during the life of the insured for a period of two years from its date of issue depends on the facts.
2) The conclusion concerning incontestability of individual long term care insurance policies depends on whether or not the policy is tax qualified for Federal income tax purposes.
Facts:
No specific facts were provided.
Analysis:
N.Y. Ins. Law § 3203(a)(3) (McKinney 2000) provides that an individual life insurance policy must contain a provision that the policy shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue. However, there are a number of cases interpreting this, providing exceptions to the above provision. Thus, whether or not an individual life insurance policy is incontestable after being in force during the life of the insured for a period of two years from its date of issue depends on the facts.
An insurer that writes accident and health insurance may be authorized by the Superintendent to issue long term care insurance policies. N.Y. Ins. Law § 1117(a) (McKinney 2000).Pursuant to N.Y. Ins. Law § 3216(d)(1)(B)(i) (McKinney 2001-2002 Interim Pocket Part) individual accident and health insurance policies must contain an incontestability provision that limits the insurer to a two year period from the date the policy is issued to deny a claim or rescind the policy based upon the insured's misstatements on the application, except for fraudulent misstatements. Thus, if the insured of an individual long term care insurance policy that is not tax qualified for Federal income tax purposes provides a misstatement on the application, the insurer may deny the claim or rescind the policy for up to two years after the policy is issued, except that if the misstatement is fraudulent, the insurer may deny the claim or rescind the policy after the two year period.
A tax qualified long term care insurance policy may be tax deductible for Federal income tax purposes, as a medical expense pursuant to the Internal Revenue Code. 26 U.S.C.A. § 7702B (West Supp. 2001). Section 7702B(g) incorporates by reference the January, 1993 National Association of Insurance Commissioners (hereinafter "NAIC") Long Term Care Insurance Model Act requirements for tax qualified long term care insurance policies. The relevant components of the NAIC Model Act's incontestability provision, which is applicable to a misrepresentation on the application by an insured of a tax qualified long term care insurance policy, is provided below:
For a policy or certificate that has been in force for less than six (6) months an insurer may rescind a long-term care insurance policy or certificate or deny an otherwise valid long-term care insurance claim upon a showing of misrepresentation that is material to the acceptance for coverage.
For a policy or certificate that has been in force for at least six (6) months but less than two (2) years an insurer may rescind a long-term care insurance policy or certificate or deny an otherwise valid long-term care insurance claim upon a showing of misrepresentation that is both material to the acceptance for coverage and which pertains to the condition for which benefits are sought.
After a policy or certificate has been in force for two (2) years it is not contestable upon the grounds of misrepresentation alone; such policy or certificate may be contested only upon a showing that the insured knowingly and intentionally misrepresented relevant facts relating to the insured's health.
Accordingly, if a New York State long term care insurance policy is to be tax deductible for Federal income tax purposes it would have to be contestable in accordance with the NAIC Model Act.
For further information you may contact Senior Attorney Robert Freedman at the New York City Office.