South Carolina Life and Health Practice Exam

In what scenario might a life insurer refuse to pay a death benefit?

1. If the insured dies in an accident

2. If the insured's premiums were not paid

3. If the insured had misrepresented information on the application

4. If the insured was over the age limit for the policy

The correct answer is: If the insured had misrepresented information on the application

A life insurer may refuse to pay a death benefit if the insured had misrepresented information on the application. This occurs because the insurer relies on the accuracy of information provided by the applicant to assess risk and determine insurability. If it is later discovered that the insured provided false or misleading information regarding critical factors—such as health history, lifestyle, or prior claims—the insurer may consider the policy void. This practice is rooted in the principle of utmost good faith, which requires both parties to act honestly and transparently. Misrepresentation can lead to the insurer facing increased risk that they were not willing to underwrite at the time of policy issuance. Therefore, when the truth comes to light, the insurer has justifiable grounds to deny a claim based on this violation of trust. In contrast, other scenarios, such as an accidental death claim, missed premium payments, or policy eligibility related to age, typically do not provide the same grounds for refusal. Accidental deaths are usually covered, unpaid premiums could lead to policy lapse but do not affect the claim if the policy is still active, and age limits apply to policy eligibility rather than potential claims. Hence, misrepresentation stands out as a significant issue that could invalidate a policy claim.