California Life-Only & Accident and Health AgentLife InsuranceHard
An agent is helping a client complete a life insurance application. The client admits to having smoked cigarettes occasionally in the past but states they quit 3 years ago. The agent advises the client to mark 'non-smoker' on the application, claiming it's been long enough. If the client follows this advice, what potential issue could arise in the future?
- AThe premiums will be retroactively lowered.
- BThe policy will automatically convert to a term life policy.
- CThe policy will be issued with a Preferred Risk rating.
- DThe insurer may deny a future claim based on misrepresentation.
Show answer & explanationAnswer & explanation
Correct answer: D. The insurer may deny a future claim based on misrepresentation.
Misrepresentation of material facts on a life insurance application, even if advised by an agent, can lead to the insurer denying a claim or rescinding the policy. Smoking status is a material fact affecting underwriting and premiums.
Why the other options are wrong
- A. Premiums could be retroactively adjusted upwards, but never lowered, if the truth about smoking was discovered after issuance.
- B. There is no mechanism for an automatic conversion to term life based on misrepresentation of smoking status.
- C. Misrepresentation, especially about smoking, would likely lead to a higher rating or denial, not a Preferred rating.
Misrepresentation (Life Insurance)
A false statement of a material fact on a life insurance application that, if known by the insurer, would have caused them to decline the application, issue with a different rating, or for a different amount.
- False statement of a material fact.
- Can be intentional or unintentional.
- Materiality is key: did it influence the insurer's decision?
- Can lead to policy rescission or claim denial.
Memory trick: Misrepresentation: False statements on the form lead to future claim storms.