Massachusetts Life Producer Practice Exam

What term describes a false statement on an insurance application that impacts the insurer's decision?

1. Misrepresentation

2. Material misrepresentation

3. Fraudulent claim

4. Negligence

The correct answer is: Material misrepresentation

The term that specifically refers to a false statement on an insurance application that impacts the insurer's decision is "material misrepresentation." A material misrepresentation is a significant false statement that could influence an insurer's assessment of the risk being insured. It differs from a general misrepresentation in that it specifically pertains to information that is crucial for the insurer’s evaluation process. For instance, if an applicant fails to disclose a serious health condition while applying for life insurance, this could be considered a material misrepresentation, as it can alter the insurer's underwriting decision regarding coverage eligibility or premium rates. In the context of insurance law, if a misrepresentation is material, it can allow the insurer to void the policy or deny a claim, significantly impacting the policyholder's coverage and rights. Recognizing the difference between material misrepresentation and other terms helps to understand the legal obligations of applicants and the rights of insurers in underwriting and claims processes. Fraudulent claims, for example, refer to intentional deceit with the intent to gain undeserved benefits, while negligence pertains to a failure to exercise appropriate care, and does not specifically relate to the accuracy of information provided in an insurance application.