Life License Qualification Program (LLQP) Practice Exam

What action will the insurer take if material misrepresentations were discovered after P died five years after purchasing a life policy?

1. Beneficiary will be denied the claim

2. Beneficiary will be denied the claim and refunded all paid premiums

3. Beneficiary will be paid the Death Benefit

4. Beneficiary will be paid a partial Death Benefit

The correct answer is: Beneficiary will be paid the Death Benefit

In circumstances where material misrepresentations are discovered after the death of the policyholder, particularly five years after purchasing a life insurance policy, the insurer typically cannot deny the claim based solely on those misrepresentations. This is because most jurisdictions operate under the principle of incontestability, which means that after a life insurance policy has been in force for a specified period—usually two years but can vary—an insurer cannot contest the validity of the policy except in very specific instances, such as fraud. Since P passed away five years after the life insurance policy was issued, the insurer is generally obligated to pay the Death Benefit to the beneficiary, regardless of the misrepresentations made in the application, assuming those misrepresentations did not rise to the level of fraud. As a result, the beneficiary would receive the full Death Benefit, reinforcing the foundational principle in insurance that emphasizes the importance of protecting beneficiaries when the insurance contract has been legally binding for a significant duration. In understanding this situation, it is also important to note that the other options imply either a denial of the claim or a reduction in benefits based on the misrepresentation, which goes against the established practice of honoring policies after the incontestable period has elapsed.