LLQP Life Insurance · Component 4.2 · 10% of the exam
A death claim reveals that the insured was a smoker although the policy was issued at non-smoker rates on the basis of the application. Within the contestability period, the insurer may:
- APay in full without question, since the two-year contestability period protects the beneficiary from any investigation of the claim
- BIncrease the death benefit to the amount a smoker's premium would have bought, since the client overpaid for the coverage
- Treat it as material misrepresentation and, depending on the facts, void the policy or adjust it
- DOnly refund the premiums to the agent, who returns them to the estate after deducting the commission already paid
Correct answer: C) Treat it as material misrepresentation and, depending on the facts, void the policy or adjust it
Smoking status is material and is a common cause of contested claims. Some insurers void the policy; some adjust the benefit to what the smoker premium would have bought. Either way the family loses because of a misstatement.
Why the other options are wrong
- AMaterial misrepresentation within contestability is investigated.
- BMisrepresentation does not increase benefits.
- DPremiums, if refunded, go to the estate or beneficiary, not the agent.
Exam tip
Smoking misstatement = material misrepresentation. Get it right at application.
Common mistake
Letting a client 'round down' their smoking on the application.
What this tests
CISRO competency component 4.2 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Life Insurance module. Written against the published curriculum.
More from component 4
- After a policy is reinstated, the contestability period:
- A revocable beneficiary designation is changed by:
- A client asks the agent to hold the beneficiary change form 'until next week' and dies in the meantime. The consequence is that:
- A client wants to reduce the face amount of her policy because her needs have fallen. The agent should note that:
- A client is unable to pay premiums temporarily on a whole life policy. Before letting it lapse, the agent should suggest:
- A client's term policy is being replaced with a new one from another insurer because it is cheaper and he remains healthy. To protect the client, the agent should ensure that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.