Difficulty: Hard

Average Score: 45%

If an insurer issues a life insurance policy on an applicant who later is diagnosed with AIDS, which action MUST the company take?

Rationale

Provide full policy benefits upon the insured's death

In the scenario where an insurer issues a life insurance policy to an applicant who is subsequently diagnosed with AIDS, the company is obligated to honor the terms of the policy and provide the full benefits stipulated in the contract upon the insured's death. Denying benefits due to the cause of death would contravene the terms of the agreement and could lead to legal repercussions.

A (Exclude coverage if death results from AIDS) YOUR ANSWER

This option would be considered unethical and potentially illegal. Insurers are typically bound by the terms of the policy contract, and denying coverage based on a specific cause of death, such as AIDS, would likely constitute a breach of contract.

B (Provide reduced benefits for any AIDS-related claim) YOUR ANSWER

Reducing benefits specifically for AIDS-related claims could also be seen as discriminatory and unfair practice. Insurance policies are meant to provide financial protection to beneficiaries upon the insured's death, regardless of the cause.

D (Report the insured's marital status to the Medical Information Bureau (MIB)) YOUR ANSWER

Reporting the insured's marital status to the MIB is unrelated to the issue of providing benefits in the event of the insured's death. The MIB is primarily concerned with sharing medical information among member insurers to prevent fraud and misrepresentation in insurance applications.

Conclusion

In situations where an insurer issues a life insurance policy to an applicant who later receives an AIDS diagnosis, the company must fulfill its contractual obligations and provide the full benefits outlined in the policy upon the insured's death. Denying or reducing benefits based on the cause of death would likely violate the terms of the insurance agreement and could result in legal consequences.

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