IIQE Paper 3 Explaining the Life Insurance Policy question: years after issue

IIQE Paper 3Explaining the Life Insurance Policy

Four years after issue, an insurer discovers that the policyowner had no insurable interest in the life insured when the policy was taken out. The incontestability provision:

A does not stop the insurer raising the illegality
B allows the point to be raised only in the first two years
C bars the insurer from raising the point once two years have passed
D turns the policy into a valid contract after the contestable period

Show the answer and explanation

Answer: A. does not stop the insurer raising the illegality

Answer: does not stop the insurer raising the illegality. The clause leaves the insurer free to argue that the contract is illegal, and lack of insurable interest is a standard example of illegality.Why not the others:• allows the point to be raised only in the first two years: The two-year limit applies to contesting validity on other grounds, not to illegality.• bars the insurer from raising the point once two years have passed: Illegality, such as lack of insurable interest, is outside the clause's protection.• turns the policy into a valid contract after the contestable period: The clause cannot make an illegal contract valid.Watch out: Assuming the clause covers every ground of challenge, including illegality.Rule: Incontestability does not prevent the insurer raising illegality, e.g. lack of insurable interest.Source: IA Long Term Insurance (Paper III) Study Notes, 2022 Edition (8th ed., June 2022; for exams from 24 Oct 2022), 4.2(c), p. 4/3