South Carolina Life and Health Practice Exam

What must an insurer do if they want to change the terms of an insurance policy?

1. Notify the policyholder

2. Seek approval from the Department

3. Reissue the policy

4. Provide a written explanation

The correct answer is: Notify the policyholder

In order to change the terms of an insurance policy, the insurer is required to notify the policyholder. This notification requirement is crucial as it ensures that the policyholder is aware of any changes that could affect their coverage, premiums, or benefits. Keeping the policyholder informed enables them to understand how the changes may impact their insurance protection and allows them to make informed decisions regarding their policy. While other actions, such as seeking approval from the Department or reissuing the policy, might be part of an insurer's internal processes or regulatory requirements, the fundamental obligation is to communicate changes directly to the policyholder. Providing a written explanation can also be part of this notification, but the primary requirement is the act of notifying the policyholder of the changes. Overall, maintaining transparency through notification reinforces trust and clarity in the insurance relationship.