A life insurance applicant intentionally provides false information about their medical history on the application. The policy is issued, and two years later, the insured dies due to a condition that was directly related to the misrepresentation. What action will the insurer most likely take?
- AReturn the premiums paid to the beneficiary and void the policy.
- BPay the full death benefit, as the policy has been in force for over one year.
- CPay a reduced death benefit proportional to the correct medical history.
- DDeny the claim and void the policy due to material misrepresentation.
Show answer & explanationAnswer & explanation
Correct answer: A. Return the premiums paid to the beneficiary and void the policy.
Under the Incontestable Clause, an insurer generally cannot contest the validity of a policy after it has been in force for a specific period (usually 2 years) due to misstatements or concealment. However, if there was a material misrepresentation (fraudulent statement) that directly led to the death and was discovered within the contestable period, the insurer can void the policy and return the premiums paid.
Why the other options are wrong
- B. This is incorrect; the Incontestable Clause protects against innocent misstatements, not fraudulent ones that lead to death within the contestable period.
- C. This is incorrect; a reduced benefit is not the standard action for a fraudulent material misrepresentation within the contestable period.
- D. This is incorrect; while the policy may be voided, the insurer typically returns the premiums paid, rather than simply denying the claim without any return.
Incontestable Clause
A provision in a life insurance policy that prevents the insurer from denying a claim due to misstatements or concealment after the policy has been in force for a specified period (usually 2 years), except for fraudulent misstatements.
- Typically 2-year contestable period.
- Protects against innocent misstatements.
- Fraudulent misstatements may still void policy within period.
Memory trick: After two years, the truth can't be denied, unless it's a lie.