Washington Life Producer Practice Exam

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

1. The full death benefit amount

2. A prorated death benefit based on the correct age

3. No liability as the policy is void

4. The lowest coverage amount available

The correct answer is: A prorated death benefit based on the correct age

When an insured's age is misstated on a life insurance policy, the insurer's liability is adjusted based on the correct age of the insured at the time of death. This adjustment involves calculating a prorated death benefit according to the insurer's underwriting guidelines and the premiums that were charged for the policy based on the age stated in the application. Life insurance premiums are often based on numerous factors, including the age of the insured. If a lower age was stated than the true age, the insurer would have charged a lower premium, potentially resulting in a coverage amount that would not be applicable if the correct age had been provided. Therefore, the insurer will not pay the full death benefit but will instead issue a benefit that reflects what the premiums would have afforded based on the correct age. This ensures fairness and maintains the actuarial integrity of the insurance system whereby premiums and benefits correlate accurately to risk factors. In this scenario, it's clear that the insurance company retains some liability, but it is not fully responsible for the entire death benefit as if the age had been accurately stated.