Question
2.8. Charlene (78) had a life insurance policy at Personal Insurers for the past 12 years. S passed away recently. Her executor has experienced delays in payment of the insurance proceeds from Personal Insurers. According to them, they are busy with internal investigation in whether they will be paying in proceeds as Charlene apparen at underwwiting stage, confirmed her age as 38 . Choose the correct statement. A. The policy will be void as a result of the misrepresentation by Charlene. B. The policy benefits will be adjusted as deemed fit by Personal Insurers. C. The policy will pay out as there was no material effect on the policy.
Ask by Powers Chen. in South Africa
Mar 14,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The policy benefits will be adjusted as deemed fit by Personal Insurers.
Solution
**Step 1. Identify the Key Facts**
- Charlene was 78 years old at her death but was underwritten as if she were 38.
- The life insurance policy had been in force for 12 years.
- The misrepresentation is identified during an internal review by the insurer.
**Step 2. Understand the Impact of Misrepresentation**
In life insurance, if an insured person’s application contains a material misrepresentation, it can have the following effects:
- **Materiality:** Age is a critical factor in underwriting because it affects both mortality risk and the premium. Stating an age of \(38\) instead of \(78\) is a material misrepresentation.
- **After the Contestability Period:** Typically, if a policy has been in force beyond the contestability period (usually two years), the insurer must pay out the claim unless there is clear evidence of fraud.
- **Benefit Adjustment:** Instead of voiding the policy outright, many jurisdictions follow the principle that the insurer only needs to adjust the benefit amount. The adjustment is made based on what premiums would have been charged if the correct age were disclosed.
**Step 3. Apply the Principles to the Problem**
- Because the misrepresentation (age stated as \(38\) instead of \(78\)) is material, one might expect a negative consequence. However, since the policy has been active for 12 years—well beyond the contestability period—the insurer typically cannot deny the claim completely.
- The insurer, therefore, is likely to adjust the benefit. This adjustment would reflect what the benefits would have been if Charlene’s correct age (\(78\)) had been used at underwriting.
**Step 4. Choose the Correct Statement**
Given the above analysis, the correct statement is:
**B. The policy benefits will be adjusted as deemed fit by Personal Insurers.**
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution The Deep Dive
In cases of misrepresentation regarding age in life insurance, the insurer often has a right to adjust the policy benefits. If Charlene had stated her age significantly inaccurately, the insurer could argue that this affects the risk assessment, potentially leading to an adjusted payout based on the correct age. However, if the misrepresentation was not material to the underwriting or if the premium payments were made and maintained for years without issue, the policy could still be honored. It ultimately hinges on whether the incorrect age information significantly altered the insurer's decision to underwrite the policy.
