Why might an insurer utilize the contestability period?

The contestability period is a specific timeframe, usually lasting for two years from the policy issue date, during which an insurer has the right to investigate the validity of claims made against the policy. This period allows the insurer to review the accuracy of the information provided by the policyholder in their application and to ensure that no material misrepresentations were made. If a claim is submitted during this time and the insurer finds discrepancies or fraudulent information, they may deny the claim or rescind the policy.

Utilizing the contestability period is crucial for insurers to manage risk and protect themselves against potential fraud. It ensures that the company can thoroughly vet claims that arise shortly after policy issuance, when the likelihood of misrepresentation is heightened due to the newness of the policy.

The other options do not align with the primary function of the contestability period. Terminating a policy is not directly related to the contestability period, nor does it involve investigating claims. Increasing premiums typically pertains to underwriting practices rather than the contestability time frame. Encouraging individuals to modify their coverage is a separate process focused on customer service and policy adjustments, unrelated to the purpose of contestability.