Final answer:
Misrepresentation is when false or misleading statements are made about an insurance policy, affecting the purchase decision. Accurate information is vital for a fair insurance agreement and to avoid moral hazard.
Step-by-step explanation:
When an agent or insurer does not truthfully explain the terms of an insurance policy, this is considered misrepresentation. Misrepresentation occurs when false or misleading statements are made about a policy, which can influence the insured's decision-making regarding the purchase of the policy. Insurance relies on the principle of sharing risk, and all parties must have accurate information to enter into the agreement fairly. It is essential to have transparent and accurate communication to avoid moral hazard, where insured individuals may take increased risks because they are protected from the consequences of those risks.