An applicant is an avid skydiver. The insurer is willing to issue a policy but wants to exclude deaths caused by skydiving. How is this handled?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
When an applicant engages in a hazardous avocation such as skydiving, scuba diving, or private aviation, the insurer may issue the policy with an endorsement that excludes death or injury resulting from that activity, often in exchange for a reduced premium or at rates adjusted for the hazard. The insured accepts the restriction by accepting the policy. The endorsement makes the exclusion explicit and documented, protecting both parties; if the avocation had been undisclosed, misrepresentation rules could instead apply. The key is that the exclusion is expressly written into the contract at issue, so the insured knows the hazard is not covered from the start.
Why the other options are wrong
- B) Honesty about the avocation does not obligate the insurer to cover the hazard; the insurer may price or exclude the risk through an endorsement. Underwriting may price the hazard or exclude it; honesty alone never forces the insurer to accept the risk.
- C) Charging the standard rate without any restriction ignores the increased risk; insurers either rate the hazard or exclude it. A standard rate without any restriction would leave the hazard un-priced and expose the pool unfairly.
- D) The insurer does not have to cancel the whole application; it can issue coverage with an endorsement excluding the specific activity. Issuance with an endorsement is the balanced outcome, so cancellation is not the necessary result.
Memory hook
Skydivider? Insurer says: we cover you, but not while you fall.