LLQP Ethics & Professional Practice · Component 1.3 · 60% of the exam
Eighteen months after a policy is issued, the insurer discovers the applicant failed to disclose a serious diagnosis. The insurer may:
- rescind the contract, since the non-disclosure was material and the policy is contestable
- Bcancel only the rider affected, leaving the base coverage fully in force regardless
- Cdo nothing, because an issued policy cannot be challenged once premiums have been paid
- Dincrease the premium retroactively to what would have been charged with full disclosure
Correct answer: A) rescind the contract, since the non-disclosure was material and the policy is contestable
During the contestability period an insurer may rescind for a material misrepresentation or non-disclosure. After that period only fraud and the misstatement of age provision allow the contract to be challenged.
Why the other options are wrong
- BA material non-disclosure can affect the contract as a whole.
- CA contract remains contestable during the statutory period after issue.
- DThe remedy is rescission, not a retroactive repricing of the contract.
Exam tip
Within two years, material non-disclosure allows rescission; after that, fraud only.
Common mistake
Telling a client that issue of the policy ends the insurer's ability to challenge.
What this tests
CISRO competency component 1.3 — Integrate into practice the legal aspects of insurance and annuity contracts — which is weighted at 60% of the Ethics & Professional Practice module. Written against the published curriculum.
More from component 1
- An 'assignee' of a life insurance policy is:
- A corporation as policyowner and beneficiary of a policy on a key employee:
- A 'trustee' named to receive proceeds on behalf of a beneficiary:
- The 'automatic premium loan' (APL) provision:
- A life insurance contract 'matures' when:
- The 'assignment' provision typically states that:
Practice the whole Ethics & Professional Practice module
Timed sets weighted like the exam, and review of every question you miss. Free to start.