Texas General Lines — Property and CasualtyGeneral InsuranceMedium
A life insurance applicant intentionally conceals a serious pre-existing medical condition during the application process to secure a lower premium. This action is a violation of which fundamental insurance principle?
- AIndemnity
- BInsurable Interest
- CUtmost Good Faith
- DAdhesion
Show answer & explanationAnswer & explanation
Correct answer: C. Utmost Good Faith
The principle of utmost good faith requires both the insurer and the insured to deal honestly and disclose all material facts relevant to the contract. Intentionally concealing information violates this principle.
Why the other options are wrong
- A. Indemnity restores the insured to their pre-loss financial state; it doesn't apply to misrepresentation.
- B. Insurable interest means having a financial stake in the insured item/person; it's about eligibility, not honesty.
- D. Adhesion means the policy is drafted by the insurer, and the insured accepts or rejects it as-is.
Utmost Good Faith
A fundamental principle stating that both parties to an insurance contract (insurer and insured) must act with complete honesty and disclose all material facts to each other.
- Requires honesty and transparency.
- Misrepresentation or concealment violates this principle.
- Essential for fair underwriting and claims settlement.
Memory trick: A GOOD FAITH interest INDEMNIFIES an ADHERENT.