Life & Health Insurance Exam (National Portion)Ethics and SuitabilityEasy
An insurance agent is helping a client, Mr. Davis, complete an application for a new life insurance policy. Mr. Davis mentions that he was treated for a serious heart condition five years ago but states he has fully recovered and sees no need to disclose it on the application, suggesting it's 'old news.' How should the agent proceed?
- AExplain to Mr. Davis that all past medical conditions, regardless of recovery, must be disclosed accurately on the application.
- BSuggest Mr. Davis consult his doctor to determine if the condition is still relevant before disclosing it.
- CComplete the application without mentioning the condition, assuming the insurer will discover it if necessary.
- DAdvise Mr. Davis that he can omit the information as long as he feels fully recovered.
Show answer & explanationAnswer & explanation
Correct answer: A. Explain to Mr. Davis that all past medical conditions, regardless of recovery, must be disclosed accurately on the application.
Agents have an ethical and legal duty to ensure that all information provided on an insurance application is accurate and complete. Omitting material facts, even if the client believes them to be irrelevant, can lead to policy rescission or denial of claims.
Why the other options are wrong
- B. While consulting a doctor is good for health, the agent's duty is to ensure all known conditions are disclosed on the application, not to defer the decision to a third party.
- C. This constitutes an act of omission and misrepresentation, which is illegal and unethical.
- D. This is unethical and could lead to misrepresentation, potentially voiding the policy.
Material Fact Disclosure
A material fact is any information that would influence an insurer's decision to accept a risk, set a premium, or determine policy terms. Agents must ensure all material facts are disclosed accurately.
- All material facts must be disclosed.
- Omission can invalidate a policy.
- Agent's duty to ensure accuracy.
Memory trick: Always complete applications with Utmost Good Faith and Full Disclosure.