Indiana State Life and Health Insurance Practice Exam 2025 - Free Practice Questions and Study Guide

The Misstatement of Age provision plays a critical role in insurance contracts. If an insurer finds that a policyholder has understated their age, the policy's benefit amounts will be adjusted based on the accurate age of the insured at the time of issuance of the policy. This means that the death benefit would be lowered to reflect the higher premiums that would have been charged had the correct age been disclosed.

Insurance policies are usually priced according to age since the risk of mortality increases with age. Therefore, if a younger age is reported, a lower premium is charged, and a higher risk is assumed by the insurer. When the insurer discovers the actual age is greater than what was originally stated, it recalibrates the death benefit according to what the premiums paid would have purchased at the correct age. This ensures fairness between the insurer and the insured, preventing the policyholder from benefitting from a misquote.

In essence, under the Misstatement of Age provision, the death benefit is adjusted to a reduced amount commensurate with the age that should have been reported, ensuring that the insurer can avoid incurring losses that would not have been accepted had the true age been disclosed initially.