An applicant for a whole life insurance policy fills out the required paperwork but completely skips a section regarding high-risk recreational activities. The producer unknowingly forwards the documents to the home office. The underwriting department processes the paperwork and issues the policy without requesting the missing data. One year later, the insured is fatally injured while participating in a high-risk recreational activity. Under standard insurance principles regarding the completion of an application, how will the claims department handle this situation?
- AThe insurer will deny the claim because any overlooked application question automatically renders the contract voidable upon discovery.
- BThe insurer will void the policy and refund all premiums due to a lack of complete consideration from the insured.
- The insurer must pay the full death benefit because issuing the policy with an unanswered question constitutes a waiver of that information.Answer
- DThe insurer will deny the claim because the unanswered question constitutes a breach of warranty by the applicant.
Answer
The insurer must pay the full death benefit because issuing the policy with an unanswered question constitutes a waiver of that information.
When an application is submitted with unanswered questions, the insurer has the right to return it to the producer and applicant for completion. However, if the insurer proceeds to issue the policy based on that incomplete application, they legally waive their right to that specific information. Consequently, they cannot deny a subsequent claim on the basis that the information was missing.
Step-by-Step Solution
Key Concept
Incomplete Applications and Waiver