Texas Life Agent Practice Exam

What part of the insurance policy does a prospect's statements in an application constitute?

1. Condition clause

2. Covenant clause

3. Consideration clause

4. Exclusion clause

The correct answer is: Consideration clause

The statements made by a prospect in an application are considered part of the consideration clause of an insurance policy. The consideration clause outlines the exchange of value between the insurance company and the insured. In the context of an insurance policy, the applicant's answers and disclosures in the application form represent the applicant’s promise to provide truthful information and, in exchange, the insurer agrees to provide coverage based on that information. This constitutes the foundational element of the contractual agreement; without accurate statements from the applicant, the insurer would not be able to assess risk appropriately and would not be able to formulate the policy or its terms. Thus, the applicant’s truthfulness and accuracy in their disclosures directly impact the validity of the policy and the obligations of the insurer.