Two years after a California life insurance policy is issued, the insurer discovers that the insured deliberately concealed a serious heart condition on the application. The insured then dies of unrelated causes. What is the insurer's remedy under the incontestability clause?

Explanation

California Insurance Code §10113.5 requires every life policy to be incontestable after it has been in force during the lifetime of the insured for 2 years from the date of issue, EXCEPT for nonpayment of premium. Once the 2-year contestable period expires, the insurer cannot rescind for misrepresentation or even concealment — the death benefit must be paid, which is why the response requiring payment of the death benefit is correct. The 2-year window balances insurer protection against ongoing fraud risk to consumers. Rescinding the policy and refunding only the premiums paid is a remedy available only WITHIN the 2-year period. Cutting the face amount under the misstatement-of-age clause is the wrong remedy entirely — that clause adjusts the face amount for a misstated age, not for concealment of a health condition. The claim that deliberate concealment is fraud and so is never barred by the running of the two-year contestable period is incorrect under California law — even fraudulent concealment generally cannot be raised after 2 years in life insurance (a key California consumer protection, contrasting with general contract-fraud rules).