Maryland Life and Health Insurance License Practice Exam

If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies?

1. A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age

2. The full death benefit regardless of the misstated age

3. No death benefit will be paid

4. Only half of the death benefit will be paid

The correct answer is: A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age

When an insured's age has been misstated on a life insurance policy, the insurer's liability in the event of the insured's death typically comes down to the principle of equitable adjustment. The correct answer indicates that the insurer will pay a prorated death benefit based on what the premiums would have purchased if the policy had been issued at the correct age of the insured. This approach is rooted in the understanding that premiums for life insurance are largely determined by the age of the insured at the time of the policy issuance. If the age is misstated, the premiums paid may not reflect the appropriate cost risk associated with the rightful age. Therefore, rather than voiding the policy or paying the full benefit that is inconsistent with the premiums contributed, the insurer recalibrates the death benefit to align with the premiums that should have been paid had the insured’s age been accurately reported. The insurance industry adheres to this practice to maintain fairness between the insurer and the insured, ensuring that benefits are proportionate to the risk taken on by the insurance company.