Massachusetts State Life Insurance Practice Exam

How does the misstatement of age or sex provision affect policy benefits?

1. It voids the policy in case of a misstatement

2. It requires penalties for the insured

3. It adjusts the benefit based on the correct age or sex

4. It allows insurers to raise premiums indefinitely

The correct answer is: It adjusts the benefit based on the correct age or sex

The misstatement of age or sex provision is designed to ensure that the benefits payable under a life insurance policy accurately reflect the true age and sex of the insured. If there is a misstatement, instead of voiding the policy or penalizing the insured, the insurer will adjust the policy benefits accordingly. For instance, if an insured person inaccurately states their age as younger than they actually are, and this misstatement is discovered at the time of a claim, the insurer will recalibrate the benefit amount based on what the premium would have been had the correct age been provided. This means that the insurance company will typically pay out the proportionate amount of the original benefit that corresponds to the true age or sex, rather than denying the claim or canceling the policy. This provision exists to protect both the insurer and the insured, ensuring that premiums and benefits maintain equitable conditions based on accurate underwriting criteria. Thus, the key takeaway is that the adjustment based on the correct age or sex allows for a fair resolution that aligns with the true risk profile of the insured, without completely negating the coverage.