State RegulationsAZ specificDifficulty 2/5
An Arizona life policyholder understated his age on the application and dies while the policy is in force beyond the contestable period. Under A.R.S. 20-1206, what should the insurer pay?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under A.R.S. 20-1206, a misstatement of age does not void an Arizona life policy; instead, the amount payable is the amount the premiums paid would have purchased at the correct age. This equitable adjustment keeps the contract alive while putting the insurer and policyholder in the position they would have occupied had the true age been reported from the start.
Why the other options are wrong
- A) Age misstatement triggers an equitable adjustment of benefits, not forfeiture; A.R.S. 20-1206 expressly preserves the policy.
- C) The insurer does not pay the full face amount and chase the difference; the benefit is recalculated to what the premiums bought at the correct age.
- D) Cash surrender value is a living-benefit measure and has no role in the death-benefit adjustment required by A.R.S. 20-1206.
Memory hook
Wrong age, right math — pay what the premiums would have bought.