Rhode Island Life Insurance Practice Exam

In what situation is a life insurance death benefit typically not payable?

1. Upon natural causes of death

2. If the insured committed fraud in the application

3. During an accidental death

4. If the insured has passed the grace period

The correct answer is: If the insured committed fraud in the application

A life insurance death benefit is typically not payable if the insured committed fraud in the application. This situation arises because life insurance contracts are based on the principle of utmost good faith, meaning both the insurer and the insured must be honest in their dealings. If an insured individual knowingly provides false information on their application—such as misrepresenting their health status, lifestyle activities, or financial situation—the insurer can void the policy and deny the claim based on this fraudulent behavior. This protects the insurer from adverse selection, where high-risk individuals may otherwise obtain coverage by hiding relevant information. In contrast, a death caused by natural causes is generally covered by life insurance policies, as these are standard situations that policies are designed to address. An accidental death is also typically covered, provided the policy doesn't have specific exclusions for such events. Additionally, if the insured has passed the grace period, the insurer may still pay the death benefit unless the policy has lapsed due to non-payment, which is a separate condition from fraud. Therefore, fraud in the application is a clear reason for the non-payment of a death benefit, making it the correct answer.