California Life-Only & Accident and Health AgentLife InsuranceHard
A technician is reviewing a life insurance application and notices that the applicant has failed to disclose a material fact. The insurer issues the policy as applied for. If the insurer later discovers this undisclosed material fact within the contestable period, what action can the insurer typically take?
- AReduce the death benefit by 50%.
- BRequire the policyowner to purchase an additional rider.
- CDeny the claim and refund the premiums paid.
- DIncrease the premiums retroactively.
Show answer & explanationAnswer & explanation
Correct answer: C. Deny the claim and refund the premiums paid.
Within the contestable period (usually 2 years), if the insurer discovers a material misrepresentation or concealment on the application, they can contest the policy, deny a claim, and rescind the policy, typically by refunding the premiums paid.
Why the other options are wrong
- A. Reducing the death benefit is not the standard remedy for concealment or misrepresentation; it's typically full denial or rescission.
- B. Requiring an additional rider after policy issuance due to prior concealment is not a standard action; the insurer would likely contest the policy itself.
- D. While premiums could have been higher if the truth was known, retroactive premium increases are not the standard remedy for concealment/misrepresentation within the contestable period; rescission is.
Contestable Period (Life Insurance)
A period, typically two years from the policy's issue date, during which the insurer has the legal right to challenge the validity of the policy and deny a claim based on material misrepresentations or concealment in the application.
- Usually lasts for 2 years from policy issue date.
- Allows insurer to investigate application accuracy.
- If material misrepresentation/concealment found, policy can be rescinded.
- After the period, policy is generally incontestable, except for fraud.
Memory trick: Contestable: Within 2 years, they can contest your lies.