Life & Health Insurance Exam (National Portion)Underwriting and Policy IssueHard
An agent is assisting a client with completing a life insurance application. The client discloses a minor, treatable medical condition that the agent believes is insignificant. The agent advises the client not to mention this condition on the application to avoid potential delays. If the client follows this advice, what potential consequence could arise regarding the policy's validity?
- AThe insurer will simply issue a rated policy once the condition is discovered.
- BThe policy will be issued as standard, and the condition will be covered.
- CThe agent will be held solely responsible, and the policy will remain valid.
- DThe policy may be voided by the insurer if the misrepresentation is discovered.
Show answer & explanationAnswer & explanation
Correct answer: D. The policy may be voided by the insurer if the misrepresentation is discovered.
Advising a client to omit material information from an application constitutes misrepresentation. If the insurer discovers this material misrepresentation, especially if it was intentional, they have the right to void the policy, denying any claims.
Why the other options are wrong
- A. While a rated policy might have been issued if disclosed, hiding the information can lead to voiding, not just a later rating.
- B. Omitting material information is misrepresentation and can lead to policy invalidation, not standard issuance and coverage.
- C. Both the client (for misrepresentation) and the agent (for unethical conduct) could face consequences, but the policy's validity is primarily affected by the applicant's misrepresentation.
Material Misrepresentation
A false statement by an applicant on an insurance application that, if known by the insurer, would have caused them to deny coverage or issue the policy on different terms.
- False statement of a material fact
- Can lead to policy voidance
- Intentional or unintentional
Memory trick: Hide the Truth? Policy's 'V'oided, No 'C'overage, 'R'ejected.