Which statement about the contestability of a life insurance policy is correct?

The statement that the policy can be contested by the insurer only during the first two years of the contract is accurate and reflects the common principle of contestability in life insurance policies. This principle exists to protect both the insurer and the insured by allowing the insurer to verify the accuracy of the information provided at the time of application.

During the initial two-year period, if the insurer discovers material misrepresentation or concealment in the application, it has the right to contest the policy. This two-year time frame serves as a safeguard for insurers against fraudulent or unintended misrepresentation while also providing policyholders some assurance that once the period has lapsed, their coverage is secure except for certain circumstances like non-payment of premiums.

After the two-year contestability period, life insurance policies typically cannot be contested on the grounds of misstatements made in the application, further ensuring the policyholder's security in their coverage after this initial period. This principle emphasizes the importance of honesty in applying for insurance and also signifies a commitment from insurers to honor claims once they have had a reasonable period to assess risk and verify information.