Final answer:
An accident and health insurance policy cannot be contested by the insurer after the contestability period, which is typically two years. After this period, the policy becomes incontestable. This measure is to prevent insurance companies from disputing claims indefinitely, but overall insurance operations must also factor in costs and profits to remain viable.
Step-by-step explanation:
Once an accident and health insurance policy has been in force for two years, the policy may not be contested by the insurer. This period is generally referred to as the 'contestability period,' during which the insurance company has the right to challenge the validity of the policy for reasons such as misrepresentation or fraud. After this period, the policy becomes incontestable, meaning the insurance company must honor claims, assuming premiums are paid, and cannot cancel the policy for any reasons that existed before the end of the contestability period. These provisions are designed to protect consumers and ensure fair treatment by preventing insurance companies from endlessly disputing claims.
However, the landscape of insurance can be complex, with factors such as reserves, administrative costs, and groups with different risk profiles affecting the overall operations. Yet the fundamental law of insurance must stand: the total collected premiums must cover claims, operational costs, and profits. Moreover, insurance regulations play a critical role in harmonizing the interests of consumers and insurance companies, as overly restrictive rules on premiums can lead to a lack of insurer participation in a particular market.
Understanding the contestability period, and the broader regulatory environment, helps one grasp the delicate balance that must be maintained in the insurance sector for it to function effectively and sustainably.