California Life-Only & Accident and Health AgentLife InsuranceHard
An applicant for a life insurance policy intentionally fails to disclose a pre-existing heart condition on their application. This omission is material to the insurer's decision to issue the policy and set the premium. Which legal principle allows the insurer to void the policy if this misrepresentation is discovered within the contestability period?
- ARepresentation
- BAdhesion
- CConcealment
- DWarranty
Show answer & explanationAnswer & explanation
Correct answer: C. Concealment
Concealment is the intentional withholding of a material fact that is essential to the insurance risk. Since the applicant intentionally failed to disclose a material fact (heart condition), this constitutes concealment, allowing the insurer to void the policy if discovered within the contestability period.
Why the other options are wrong
- A. A Representation is a statement believed to be true to the best of one's knowledge, but not guaranteed. The scenario describes an intentional omission, which is stronger than a mere representation.
- B. Adhesion refers to the 'take-it-or-leave-it' nature of insurance contracts, where the applicant has no input on terms.
- D. A Warranty is a statement guaranteed to be true, and a breach of warranty could void a policy; however, the act here is specifically withholding information, not making a false statement.
Concealment (Insurance)
The intentional withholding of a material fact by an applicant for insurance, which, if known, would have influenced the insurer's decision regarding policy issuance or premium.
- Must be intentional.
- The concealed fact must be material to the risk.
- Can result in the policy being voided by the insurer, especially within the contestability period.
Memory trick: Agreement, Consideration, Competent, Legal: The contract's core, plus Utmost Good Faith.