Rhode Island Life Insurance Practice Exam

In which situation is a life insurance policy likely to be voided by the insurer?

1. Failure to pay premiums on time

2. Misrepresentation proven to be material

3. Change of beneficiaries

4. Failure to disclose a criminal record

The correct answer is: Misrepresentation proven to be material

A life insurance policy is likely to be voided by the insurer in the case of misrepresentation proven to be material. This is because material misrepresentation occurs when a policyholder provides false information on the application that is critical to the insurer's decision to issue the policy. If the insurer can demonstrate that the misrepresentation would have influenced their underwriting decision or the risk assessment process, they have valid grounds to void the policy. Material misrepresentation directly impacts the insurer's ability to assess risk accurately. For example, if an applicant conceals a serious medical condition or misrepresents their smoking status, the insurer would have issued the policy under different terms or might have denied coverage altogether if they had been aware of the true facts. Thus, the policy can be rescinded if the insurer discovers the misrepresentation within the contestable period, typically the first two years of the policy. In contrast, while failure to pay premiums on time can lead to a policy lapse, it does not void the policy itself unless it leads to non-renewal. Changing beneficiaries is a common practice allowed within policies, and while a criminal record might affect eligibility for certain types of insurance, it doesn't automatically result in policy voidance unless specifically relevant information is withheld.