Massachusetts Life Producer Practice Exam

Under what condition can an insurance contract be voided?

1. If misrepresentation is deemed immaterial

2. If a misrepresentation is not disclosed

3. If the misrepresentation is material

4. If misrepresentation is made regarding premiums

The correct answer is: If the misrepresentation is material

An insurance contract can be voided if a misrepresentation is deemed material. A material misrepresentation is a false statement that could influence the underwriting decision of the insurer or the acceptance of the risk. This means that if the insurer becomes aware of a misrepresentation that significantly affects the nature of the risk, the contract can be rendered void because the insurer relied on the correctness of the information provided when determining whether to issue the policy. In the context of insurance, materiality is crucial; a misrepresentation is considered material if it affects the insurer's decision-making process or the terms of coverage. For example, if an applicant fails to disclose a serious medical condition that would affect their mortality risk, this misrepresentation could justify the insurer voiding the policy, as the misrepresented information is critical to evaluating the risk. Other conditions related to misrepresentation, like failing to disclose a non-material misrepresentation or inaccuracies about premiums, do not typically provide grounds for voiding the contract unless they significantly alter the insurer's risk assessment. This is why understanding the distinction between material and non-material misrepresentation is vital for insurance professionals.