PSI Ohio Insurance Practice Exam

What is the consequence of a misstatement of age on a life insurance application?

1. Denial of the application

2. Change in benefits to reflect the correct age

3. Immediate termination of the policy

4. No effect if it was unintentional

The correct answer is: Change in benefits to reflect the correct age

When a misstatement of age occurs on a life insurance application, the insurance company typically has the option to adjust the benefits to reflect the correct age of the insured. This is because life insurance premiums and benefits are often calculated based on the age of the applicant at the time of policy issuance. If the applicant overstated or understated their age, the insurer will re-evaluate the policy. For instance, if an individual claimed to be younger than they actually are, the insurer could find this out when a claim is filed. This discovery may lead to a determination that the policy benefits should be altered to correspond to what the premiums would have purchased had the correct age been provided. Essentially, the adjustment ensures that the coverage aligns with the actual risk associated with the true age of the insured. In contrast, denial of the application or immediate termination of the policy are more severe actions that would typically involve intentional misrepresentation or fraud rather than an unintentional error. The notion that there is no effect if the misstatement was unintentional does not account for the fact that insurance companies still need to assess risk accurately based on accurate information. Therefore, adjusting the benefits is the most common and fair outcome when an inadvertent error regarding age is identified.