Tennessee Life Producer Practice Exam

What happens when a misstatement of age is discovered in a policy?

1. Coverage will be adjusted to reflect the insured's true age

2. The policy is voided

3. The insurer pays a reduced benefit

4. No adjustments are made to the policy

The correct answer is: Coverage will be adjusted to reflect the insured's true age

When a misstatement of age is discovered in an insurance policy, the coverage will be adjusted to reflect the insured's true age. This principle is important because life insurance premiums and benefits are often based on the age of the insured at the time the policy is issued. If it turns out that the insured is older or younger than originally stated, the insurer will recalculate the premium and benefits accordingly. For example, if an individual stated they were 30 years old when applying for life insurance but are actually 35, the policy will adjust the benefit amount to what it would have been had the correct age been disclosed. This means that if the benefits were based on the premiums calculated for a younger age, they would potentially reduce the claim payout to match what the premiums would have purchased at the actual age. This process ensures fairness and helps maintain the integrity of the insurance system, as insurers rely on accurate information to assess risk and calculate premiums. It also prevents the need to void the policy or deny benefits outright, which would have negative effects on all parties involved.