Difficulty: Medium

Average Score: 63%

A life insurer that accepts an incomplete application and issues a policy is obligated to:

Rationale

Honor the contract.

When a life insurer accepts an incomplete application and issues a policy, it is legally bound to the terms of the contract as presented. The insurer's acceptance signifies that they have agreed to the coverage despite the application being incomplete, thus obligating them to fulfill their end of the agreement.

A (honor the contract) CORRECT

The insurer is required to honor the contract because issuing a policy indicates acceptance of the terms, regardless of the application's completeness. This obligation protects the insured and reinforces the principle of good faith in insurance contracts.

B (complete the application within the Contestable Period) YOUR ANSWER

This choice implies that the insurer has the responsibility to finalize the application after policy issuance. However, once the policy is issued, the insurer must adhere to the terms and cannot unilaterally modify the agreement or require further completion of the application.

C (return only the premiums paid, with interest, on the insured's death) YOUR ANSWER

This option suggests that the insurer would only refund premiums upon the insured's death, which is incorrect. If the policy is active, the insurer is obligated to provide the death benefit rather than just returning premiums.

D (charge a lower premium for the initial period of coverage) YOUR ANSWER

This statement incorrectly assumes that an incomplete application allows for reduced premium rates. Premiums are determined based on the risk assessment, and issuing a policy without complete information does not justify a lower charge.

Conclusion

In the context of insurance, when a life insurer issues a policy based on an incomplete application, they are legally bound to honor that contract. This principle emphasizes the importance of contractual obligations and the insurer's commitment to uphold the terms agreed upon, regardless of the initial completeness of the application. Each incorrect choice misrepresents the insurer's responsibilities and the nature of the contract established at policy issuance.

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