Policy Misrepresentation, Contestability & Age Misstatement — Key Points

Information that would have been of interest to the underwriter and could affect underwriting decisions (decline, exclusion, or rating).
Examples:
- Not material: last doctor visit dated Feb 2017 when actual is Mar.
- Material: cancer history denied vs. disclosed.
When misrepresentation occurs:
- Depends on when the insurer becomes aware and whether it was fraudulent (intent).

Defined as the first $2$ years after policy issue.
During this period, the insurer can contest the policy if there is a material misrepresentation, even if innocent.
They can cancel the policy and/or deny a claim.
Note: misstatement of age is treated differently and not covered here.

Begins after the $2$ -year contestability period.
Insurer can contest only if there is a material misrepresentation and they can prove fraud.
Fraud involves intentional lying; not always easy to prove, depending on the facts.

Generally, adjust the coverage amount to reflect the premium actually paid.
Example: a $500{,}000 policy, stated age 45, premium $225$ ; true age 50, premium would have been $250$ .
- Actual premium paid: $225$ ; correct premium: $250$ .
- Coverage reduced proportionally: $500{,}000 \times \frac{225}{250} = 450{,}000$ death benefit.
Exception: if the applicant was above the contractual age limit for issuing a policy, the policy can be canceled.
- Example: contract limit is 80; applicant is 82; lying to get policy; insurer could cancel if discovered.

It is easier for the insurer to contest during the contestability period because they do not have to prove fraud.
After $2$ years, contestability requires proof of fraud for misrepresentations (except certain age-related cases as above).
Real-world example (fraud): undisclosed serious illness discovered post-issue; could lead to denial of a large death benefit if fraud is proven.