Tennessee Life Producer Practice Exam

What action will an insurer take if a material misrepresentation is found after the contestable period?

1. The beneficiary will be denied the Death Benefit

2. Beneficiary will be paid the Death Benefit

3. The policy will be canceled

4. The insurer will sue the policyholder

The correct answer is: Beneficiary will be paid the Death Benefit

During the period after a life insurance policy has passed the contestable period, which is typically two years from the effective date of the policy, the insurer is generally prohibited from denying claims based on misrepresentations made by the policyholder in the application unless the misrepresentation was intentional fraud. The contestable period allows insurers the opportunity to investigate and take action on any material misrepresentations that may affect their risk assessment. Once this period expires, the insurer must honor the terms of the policy, including paying out the death benefit to beneficiaries, provided that the policy is in force and premiums have been paid. As long as the misrepresentation does not constitute fraud, the presence of misrepresentation alone will not alter the obligations of the insurer to fulfill the policy terms. Thus, if a material misrepresentation is identified after the contestable period, the insurer is obligated to pay the death benefit to the beneficiary. This approach fosters consumer protection and ensures that policyholders are treated fairly once the foundational period for contesting claims has lapsed.