Final answer:
An insurance company usually has a two-year contestability period to challenge the validity of a life insurance contract, although this can vary by jurisdiction. Option 2 is correct.
Step-by-step explanation:
Typically, an insurance company has a specified period known as the contestability period during which it can challenge the validity of a life insurance contract. This period is often two years from the inception of the policy. Within this timeframe, the insurer can investigate and deny claims based on discrepancies or misrepresentations in the application.
After the contestability period has passed, the policy is generally considered incontestable, limiting the insurer's ability to challenge the policy, except in cases of fraud. However, insurance regulations can vary by jurisdiction, so it's critical to check the specific laws in your state or the policy terms.