Arizona Life and Health Practice Exam

Which of the following is NOT a valid reason for an insurer to contest a life insurance policy during its first two years of existence?

1. Fraudulent information

2. Misstatement of health

3. Misstatement of age

4. Failure to pay premium

The correct answer is: Misstatement of age

The reason that certain types of misstatements do not provide a valid basis for contesting a life insurance policy is rooted in the principles of good faith and the legal doctrines that govern insurance contracts. Specifically, a misstatement of age does not constitute a valid reason for contesting the policy because insurance contracts often include provisions that allow for adjustments to the benefits based on the correct information. When an insurer contests a policy due to fraudulent information or misstatements regarding an applicant's health, they are justified because these elements directly affect the risk assessment. Fraudulent information can indicate an intent to deceive, while significant misstatements of health can alter the insurer’s evaluation and willingness to underwrite the risk. In the case of failure to pay premiums, this typically leads to a lapse in coverage and can result in a policy being voided. However, misstatement of age usually results in adjustments rather than outright contestation. The policyholder’s benefits may simply be recalculated based on the insured's actual age, which can lead to lower coverage amounts or altered premiums according to the insurer’s tables. Thus, misstatement of age does not hold the same weight as fraudulent statements or critical health misrepresentations because it's typically addressable through correction rather than contestation.