What is an insurer required to do when faced with an error made under the misstatement of age?

When an insurer discovers a Misstatement of Age on a life insurance policy application, the following steps and adjustments typically occur:

• Verification: The insurer first verifies the correct age of the insured. This may involve requesting documentation such as a birth certificate or other official records.

• Policy Adjustment: The insurance company will adjust the policy benefits based on the insured's correct age. The specific adjustments depend on the type of error (i.e., understated or overstated age):

  • Understated Age (Insured was younger than stated): If the insured was actually younger than stated on the application, the policy benefits are typically increased to reflect the premiums that would have been paid at the correct (younger) age. The face amount may be increased.

  • Overstated Age (Insured was older than stated): If the insured was actually older than stated on the application, the policy benefits are typically reduced to reflect the premiums that were paid, which were less than what should have been paid for the correct (older) age. The face amount may be decreased.

• Notification: The insurer will notify the policyholder (or beneficiary) of the Policy Adjustment and provide an explanation for the change.

• No Policy Voidance: Importantly, most life insurance policies include a Misstatement of Age clause that prevents the insurer from voiding the policy solely due to a misstatement of age. The policy remains in force, but the benefits are adjusted.

• Premium Adjustment (Rare): In some cases, depending on the policy terms and the extent of the age misstatement, there may be a premium adjustment as well. However, the primary action is usually benefit adjustment.

• State Laws: State laws regulate insurance practices, including how insurers must handle Misstatement of Age errors. Insurers must comply with the relevant state regulations.