If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies?

• A. The full face amount
• B. A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age
• C. No payout
• D. A new policy issued

Answer: (B)

Misstatement of age on a life policy triggers an adjustment to the death benefit. When the insured dies, the insurer uses the premiums actually paid and asks what amount of coverage that money would have purchased at the insured’s correct age. The payout is then that adjusted amount, not necessarily the full face value. In other words, the death benefit is prorated based on the amount of insurance the premiums would have bought at the correct age. For example, if the premiums paid would have bought only $150,000 of coverage at the correct age, the death benefit paid would be $150,000. This is why the correct choice describes a prorated benefit based on the premiums at the correct age, rather than paying the full face amount or issuing a new policy.