Question

James is insured on a life insurance policy where his age was misstated on the application. Which of the following is CORRECT regarding the death benefit amount?

Option 1: The death benefit will be based on James' actual age.
Option 2: The death benefit will be based on the misstated age.
Option 3: The policy will be void, and no death benefit will be paid.
Option 4: The death benefit will be determined by averaging the actual and misstated ages.

Answer 1

The death benefit in the event of a misstatement of age on a life insurance policy is usually adjusted to reflect the correct age, rather than the misstated age. The precise details can vary based on the policy's provisions and local laws. Insurance companies will typically not void the policy unless the misstatement was intentional and fraudulent.

Step-by-step explanation:

When a life insurance policy has been issued with an age misstatement, insurance companies typically adjust the death benefit based on the correct age of the individual at the time the policy was purchased. Therefore, if James passed away and it was discovered that his age was misrepresented in the insurance application, the insurer would likely adjust the death benefit amount to what would have been paid if the correct age had been known (Option 1). This adjustment is done by determining the death benefit that the premiums paid would have purchased for the correct age at the time of the policy's inception.
However, the precise handling of such a case can depend on the terms of the policy and the laws in the jurisdiction where the policy was issued. Most policies contain a provision that allows for the adjustment of benefits in case of misstated age or gender. It is less common for the policy to be considered void unless the misstatement was made fraudulently (Option 3). Options 2 and 4 are generally not what an insurance company would do. Instead, they would stick to the terms set out in the policy which likely indicate adjustment based on Option 1.