Arizona Life and Health Practice Exam

What happens if a misrepresentation is found during the underwriting process?

1. The policy is automatically accepted

2. The application is discarded

3. The policy may be voided if deemed material

4. It leads to increased premiums

The correct answer is: The policy may be voided if deemed material

During the underwriting process, a misrepresentation refers to an inaccurate statement made by the applicant regarding their health, lifestyle, or other relevant factors. If it is determined that a misrepresentation is material, meaning it could influence the insurer's decision regarding the acceptance of the risk or the terms of coverage, the insurer has the right to void the policy. This principle is grounded in the legal concept of utmost good faith, where both parties involved in the insurance contract have the duty to disclose accurate information. If the information provided by the applicant is found to be misleading and significant enough to impact the insurer's decision, the policy can be considered invalid from the start. This protects insurers from fraudulent applications and upholds the integrity of the underwriting process. Other possibilities, such as automatically accepting the policy, discarding the application, or increasing premiums, do not align with the general protocol followed when a material misrepresentation is identified. Instead, the focus remains on the authority of the insurer to rescind the coverage rather than modifying it or allowing it to stand without consequence.