What is the typical consequence if a material misrepresentation is discovered by an insurer on a life insurance application more than two years after the policy has been in force?

Question: What is the typical consequence if a material misrepresentation is discovered by an insurer on a life insurance application more than two years after the policy has been in force?

Answer options:

• The policy is automatically voided. ✅ The insurer must still pay the claim unless they can prove fraudulent misrepresentation.
• The insurer can increase the premiums retroactively.
• The death benefit will be reduced by 50%.

Correct answer: The insurer must still pay the claim unless they can prove fraudulent misrepresentation.

Explanation: Policies contain an 'incontestability clause,' which prevents the insurer from cancelling the policy after two years for misstatements, unless they can prove the misstatement was fraudulent.