South Carolina Life and Health Practice Exam

If an insured's age on a life insurance policy is misstated, what is the insurer's liability if the insured dies?

1. Full death benefit with no adjustments

2. Prorated death benefit based on correct age premiums

3. No payout due to misstatement

4. Immediate payout of the correct amount

The correct answer is: Prorated death benefit based on correct age premiums

When there is a misstatement of age on a life insurance policy, the insurer's liability at the time of the insured's death is determined based on the correct age as it relates to the premium that has been paid. If the insured is found to be older than what was stated on the policy, the premiums paid might not be adequate for the coverage provided at that age. Therefore, if the insured dies and their age was misstated, the insurer will pay a prorated death benefit. This means that the benefit will be adjusted according to what the premiums would have purchased if the correct age had been known at the time the policy was issued. Essentially, the payout reflects what the cost of coverage would have been based on the accurate age, ensuring fairness and that the insurance company does not incur undue losses from age misrepresentation.