What is the 'effective date' in a life insurance policy?

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• In a life insurance policy, the effective date is the day your life insurance coverage begins.
• The issue date is when your policy is approved and you can accept or reject it.
• If you have guaranteed issue or simplified issue life insurance, you may have a two-year waiting period before coverage kicks in.
• Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »

Life insurance is a contract between you and the life insurance company, where you pay premiums (monthly or annually) for a payout that your living relatives will receive upon your death, known as the death benefit. Should you die, the insurance company pays the death benefit to your chosen beneficiary.

There are two types of life insurance: permanent life and term life. Both can require a medical exam as part of the approval process, known as underwriting. The underwriting process can take four to six weeks, and once you're approved, you'll receive a policy. There are several dates to be mindful of once you receive your policy, especially the effective date.

What is the effective date for life insurance?

The underwriting process is how the insurance company determines your insurability — deciding how much of a risk you are and how much of a death benefit you qualify for. The insurance company collects information about your health, job, income, finances, and other personal information to determine how much it will insure you and what your premium will be. 

The effective date is the date your life insurance coverage begins. If your effective date is September 1, 2021 and you die before then, your policy will not pay your beneficiaries. If you die after this date, your policy will pay your beneficiaries.

While the effective date is the day your coverage begins, the issue date is the date your policy is issued to you for your acceptance. You can accept or reject the policy. If you die between the issue date and effective date, your beneficiaries will not receive your death benefit unless you opted for temporary coverage.

Some companies offer temporary life insurance until your application is approved

If you have no previous life insurance policy in effect, some insurance companies provide conditional or temporary life insurance until the underwriting process is complete.

If you're undergoing underwriting for a traditional life insurance policy and your provider offers temporary coverage in the interim, you might want to consider it so you know you're covered while you wait. You pay the regular premium and if you die during underwriting, your beneficiaries receive your death benefit. It ends once you're approved for full coverage.

What is the two-year waiting period?

If you have a guaranteed issue or simplified issue life insurance policy, there is usually a two-year waiting period. Guaranteed issue life insurance is sometimes referred to as "final expense" insurance because the coverage amounts are so low that they basically only cover funeral and burial expenses.

Guaranteed and simplified life insurance policies are no medical exam life insurance policies. Because there is no medical exam, you are a higher risk for the insurance company. Some insurance companies have a two-year waiting period for these policies. 

If you die within the first two years of having coverage, the policy won't pay out. So if your effective date is September 1, 2021, your beneficiaries will not receive a death benefit unless you die after September 1, 2023. Check with your insurance provider to see if you have a two-year waiting period.

What is the 'contestability' period for life insurance?

Most insurance companies have a "contestability" period. The contestability period varies by carrier, but is usually one to two years from the effective date. According to AARP, if you die within the first two years of coverage, the insurance company can request your medical history regarding your death. 

The contestability period is different from the two-year waiting period for guaranteed issue and simplified issue life insurance policies. If it's discovered that the policyholder lied on the application or failed to disclose important facts, the insurance company can invalidate the policy.

Policy expiration date

If you have permanent life insurance, your insurance lasts your lifetime. However, if you have term life insurance, it lasts for a specific time period — 5, 10, 15, 20, or 30 years — and afterwards it must be renewed, which is why it's less expensive than permanent life insurance.

For more information, you can read our guide to life insurance terms and definitions.