Life & Health Insurance Exam (National Portion)Ethics and SuitabilityMedium
A life insurance agent is performing an annual review with a long-standing client, Mr. Rodriguez. During the review, Mr. Rodriguez mentions he has recently started a high-risk hobby, competitive rock climbing, which was not disclosed on his original application. The agent should advise Mr. Rodriguez that this new information:
- AIs irrelevant unless he decides to purchase a new policy.
- BWill automatically void his current policy due to misrepresentation.
- CCould lead to an increase in his policy's cash value.
- DMay require an update to his policy to ensure continued coverage or prevent future claims issues.
Show answer & explanationAnswer & explanation
Correct answer: D. May require an update to his policy to ensure continued coverage or prevent future claims issues.
Changes in risk factors, especially high-risk hobbies, often need to be reported to the insurer. Failing to do so could lead to claims being denied or policy adjustments if the insurer discovers the increased risk. The agent has a duty to advise the client on ensuring the policy remains valid and effective.
Why the other options are wrong
- A. This information is relevant to the existing policy's validity and coverage, not just new policies.
- B. It won't automatically void the policy, but it could lead to complications or denial of claims if not addressed.
- C. High-risk activities do not increase cash value; they typically increase premiums or risk of denial.
Post-Issue Risk Disclosure
The ethical obligation of an insured to inform the insurer of significant changes in risk factors after a policy has been issued, which may impact coverage or claims.
- Often relates to changes in occupation, hobbies, or health status.
- Failure to disclose can lead to policy adjustments, increased premiums, or claim denial.
- Agents have a duty to advise clients on such disclosures.
Memory trick: Stay Transparent, Don't Be Silent.