Suppose a life insurance policy contains an incontestable clause that makes it incontestable after it has been in force during the lifetime of the insured for 2 years. If the insured dies during the first year of the contract, which of the following statements is correct?

• A. The policy immediately becomes incontestable upon the insured's death.
• B. The company would be forced to go into court during the second year to seek a rescission if it wanted to deny liability.
• C. The beneficiary can gain an advantage by postponing the notification of claim until the end of the second year, when the contestable period has expired.
• D. The insured's death during the contestable period suspends the operation of the incontestable clause and fixes the rights of the parties as of the date of death.

Answer: (D)

The key idea is how contestability interacts with a death during the contestable period. An incontestable clause typically means the policy becomes immune to most challenges after a stated period (the policy is then incontestable). But if death occurs while the policy is still within the contestable period, that period is effectively suspended and the rights of the parties are fixed as of the date of death. In practical terms, the death benefit becomes due and payable, and post-death review cannot later undo the claim based on misstatements that would have been contestable had the insured lived. This is why the correct statement says the insured’s death during the contestable period suspends the incontestable clause and fixes the rights as of the date of death.

Why the other ideas don’t fit: the policy does not automatically become incontestable at the moment of death, so A isn’t right. The insurer isn’t required to pursue a rescission in the second year merely because death happened earlier; contestability operates differently, so B isn’t right. Delaying notification to the end of the contestable period to gain an advantage isn’t how claims are handled and isn’t permissible as a strategy, so C isn’t right.