What action could an insurer take in response to a material misrepresentation by the policyholder?

What action could an insurer take in response to a material misrepresentation by the policyholder?

• A. Adjust the premium accordingly
• B. Rescind the policy entirely
• C. Provide a grace period for corrections
• D. Ignore the misrepresentation

Answer: (B)

When an insurer discovers a material misrepresentation by the policyholder, the most appropriate action they can take is to rescind the policy entirely. A material misrepresentation refers to a false statement that significantly affects the risk assessment or underwriting process, meaning that, had the true information been provided, the insurer might have chosen to deny coverage or offer different terms. Rescinding the policy means that the insurer declares the policy void from the moment it was issued, effectively treating it as if it never existed. This action is justified because the integrity of the underwriting process relies on accurate information, and a material misrepresentation undermines that foundation. As a result, the insurer is legally entitled to nullify the contract, and they may return any premium paid, depending on the circumstances surrounding the misrepresentation. In this context, the other choices do not address the core issue of the material misrepresentation. Adjusting the premium would not resolve the fundamental problem of the misrepresentation; providing a grace period for corrections would assume that the misrepresentation was unintentional and that the policy should continue; and ignoring the misrepresentation would expose the insurer to unwarranted risks. Hence, rescinding the policy is the most viable response to ensure the policy is aligned with the appropriate

When an insurer discovers a material misrepresentation by the policyholder, the most appropriate action they can take is to rescind the policy entirely. A material misrepresentation refers to a false statement that significantly affects the risk assessment or underwriting process, meaning that, had the true information been provided, the insurer might have chosen to deny coverage or offer different terms.

Rescinding the policy means that the insurer declares the policy void from the moment it was issued, effectively treating it as if it never existed. This action is justified because the integrity of the underwriting process relies on accurate information, and a material misrepresentation undermines that foundation. As a result, the insurer is legally entitled to nullify the contract, and they may return any premium paid, depending on the circumstances surrounding the misrepresentation.

In this context, the other choices do not address the core issue of the material misrepresentation. Adjusting the premium would not resolve the fundamental problem of the misrepresentation; providing a grace period for corrections would assume that the misrepresentation was unintentional and that the policy should continue; and ignoring the misrepresentation would expose the insurer to unwarranted risks. Hence, rescinding the policy is the most viable response to ensure the policy is aligned with the appropriate