Tennessee Life Producer Practice Exam

In Tennessee Life insurance, what happens if an applicant fails to disclose a significant health condition?

1. The policy becomes invalid immediately

2. The insurer may contest the claim

3. The policyholder receives a premium refund

4. The policy will automatically lapse

The correct answer is: The insurer may contest the claim

When an applicant fails to disclose a significant health condition, the insurer retains the right to contest any claims based on the nondisclosure. In the realm of life insurance, full and honest disclosure is essential for the underwriting process. Insurers rely on the information provided by applicants to assess risk and determine policy terms, including premiums and coverage limits. If an applicant withholds relevant health information, and a claim is later filed, the insurer has grounds to investigate the circumstances of the application. If they determine that the nondisclosure was significant and relevant to the risk assumed, they may deny the claim or rescind the policy, depending on the specifics of the situation and local regulations. This emphasizes the importance for applicants to be forthright when providing information, as failing to do so can have serious financial consequences for beneficiaries after a claim is made.