Texas Life Agent Practice Exam

If the insured dies five years after purchasing a life insurance policy and material misrepresentation is found, what will the insurer do?

1. Reject the claim entirely

2. Pay the claim

3. Request the premium be returned

4. Alter the death benefit amount

The correct answer is: Pay the claim

In the context of life insurance policies, if the insured passes away after a significant period, such as five years, and a material misrepresentation is found, the insurer can typically not deny the claim based solely on that misrepresentation. This principle is primarily rooted in the "incontestability clause" found in life insurance contracts. The incontestability clause generally states that after a policy has been in force for a specified period, commonly two years, the insurer cannot challenge the validity of the policy due to misrepresentations made by the insured in the application for coverage. Once the period has lapsed, the insurer is obligated to honor the claim, even if a misrepresentation is identified, as long as it wasn’t made with fraudulent intent. Therefore, the correct outcome in this situation is for the insurer to pay the claim. This ensures that the insured's beneficiaries receive the benefits as intended, reflecting the underlying purpose of life insurance to provide financial protection to loved ones. Other potential actions, such as rejecting the claim or altering the death benefit, are not applicable after this timeframe has elapsed.