State RegulationsMI specificDifficulty 2/5
A Grand Rapids man misstated his age by ten years on his individual life insurance application. Years later he dies, and the insurer discovers the misstatement while adjusting the death claim. How must the insurer handle payment?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
M.C.L. 500.4018 requires the insurer to treat the policy as if it had been issued at the correct age: the death benefit is recalculated to the amount the premiums paid would have purchased at the insured's true age. The claim is paid — this is not grounds for denial — but at the recalculated level. This keeps the insurer whole for the underpriced risk without punishing the beneficiary with total forfeiture.
Why the other options are wrong
- A) The misstatement does matter: M.C.L. 500.4018 mandates an age-based adjustment rather than payment of the stated face amount.
- C) The 12% interest figure belongs to delayed claim payment under M.C.L. 500.2006, and premium refund with denial is not the age-misstatement remedy.
- D) Michigan law provides a recalculation formula, not any percentage penalty; no statutory penalty figure exists for age misstatement.
Memory hook
Age misstated, benefit recalculated — paid, but never at the wrong price.