How will the insurance company handle the claim?

Cassie applies for a $100,000 renewable 10-year term insurance policy through Mason, her insurance of persons representative. A month later, when Mason meets with Cassie again to deliver her contract, Cassie says she had to have a biopsy the previous week for a persistent cough. Mason tells her not to worry because the policy is already accepted. He completes the policy delivery. Six months later, Mason receives a call from Cassie’s boyfriend informing him that Cassie died of stage 4 throat cancer.

How will the insurance company handle the claim?
A . No death benefit will be paid because Cassie died within 2 years of obtaining the policy.
B . No death benefit will be paid because Mason did not inform the insurance company of the change in Cassie’s insurability.
C . The death benefit will be paid because Cassie visited the doctor after filling out the application form.
D . The death benefit will be paid although Mason was negligent for delivering the policy and he would be liable towards the insurer.

View Answer

Answer: B

Explanation:

In this scenario, the policy was accepted and delivered to Cassie by Mason before her biopsy, indicating that she was considered insurable at the time of application. However, the insurance policy is subject to a two-year contestability period, during which the insurer can investigate the claim if they believe relevant information regarding the insured’s health was omitted or misrepresented.

According to LLQP guidelines, insurance contracts are built on the principle of utmost good faith, requiring that both the client and the representative disclose all material facts that may affect the insurance risk. If the insured’s health status changes significantly between the application and delivery of the policy, it is the representative’s duty to inform the insurer to reassess the risk.

In this case, Mason, as the insurance representative, failed to disclose Cassie’s new health condition, which is considered a material change to her insurability. Under LLQP ethics and practice standards, non-disclosure of this change can result in the insurer denying the claim, as it affected the underwriting decision.

Therefore, due to the lack of disclosure by Mason, the insurance company would have grounds to deny the claim based on this material change in insurability, aligning with LLQP provisions and insurance contract law.