Question

P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?

A.Beneficiary will be denied the claim
B.Beneficiary will be denied the claim and refunded all paid premiums
C.Beneficiary will be paid the Death Benefit
D.Beneficiary will be paid a partial Death Benefit

Answer 1

The correct answer is option c. If material misrepresentations are found after the contestability period of a life insurance policy, the insurer is generally required to pay out the death benefit. The claim will only be denied if the misrepresentation is fraudulent.

Step-by-step explanation:

When an insurer discovers material misrepresentations on a life policy application after the policyholder dies, the insurer's action depends on the terms of the contract and the laws of the jurisdiction governing the policy. Typically, if misrepresentations are discovered within the contestability period, which usually lasts for the first two years of the policy, the insurer has the right to deny the claim and cancel the policy, returning any paid premiums to the beneficiary.

However, if the policyholder dies after the contestability period has passed, the insurer might be legally obligated to pay out the death benefit. In this scenario, since the policyholder died five years after the policy was purchased, the insurer is likely to pay out the death benefit despite the misrepresentations unless fraudulent activity is involved.