Texas Life Agent Practice Exam

What action will the insurance company take if the insured’s age is understated and discovered after death?

1. Cancel the policy with no payment

2. Pay the amount that the premium would have purchased at the correct age

3. Pay nothing as the policy is invalid

4. Charge an additional premium

The correct answer is: Pay the amount that the premium would have purchased at the correct age

If the insured's age is understated and this is discovered after death, the insurance company will pay the amount that the premium would have purchased at the correct age. This policy reflects the fundamental principle of indemnity in insurance, meaning the insurer compensates the beneficiary based on what they would have been entitled to had the age been accurately represented. When the insured's age is misrepresented on the application, it does not automatically invalidate the policy; rather, it affects the risk assessment and premium calculations. Life insurance premiums are determined by the insured's age, and a misstatement can lead to an adjustment in the payout amount. Therefore, if the actual age was higher than stated, the payout will be adjusted to correspond with what the premiums would have afforded had the insurer been aware of the accurate age initially. This approach ensures fairness to both parties: the insurer does not bear a greater risk than intended, and the beneficiaries still receive a benefit, reflecting the true premium payments made. This mechanism is designed to maintain the contractual integrity while addressing any discrepancies in the insured's age, rather than immediately canceling the policy or refusing to pay.