The Misstatement of Age Protection Clause in Life Insurance Contracts

Yet another protection for the policyowner of an individual contract and policy beneficiaries is the “misstatement of age” clause that is required by law in most states and will typically read similarly to this:

This policy is issued at the age shown on page ___, which should be the age attained by the insured on the last birthday before the Policy Date. If the Policy Date falls on the Insured’s birthday, the age should be the Insured’s attained age on the Policy Date.

If the insured’s age is incorrectly shown on page ___, the proceeds payable under this policy will be adjusted to the proceeds that would have been purchased at the correct age based upon our rates in effect when this policy was issued.

Mortality can vary considerably with age. So obviously, age is a crucial factor in the calculation of the proper life insurance premium for a given class of risk. If the wrong age is stated on the application (regardless of whether by deliberate misstatement or because the insured just did not know his date of birth), the insurer cannot charge the appropriate premium and the policyowner may pay much more or much less than what should have been paid. The insurance company trusts the applicant to be truthful and as a matter of convenience to both parties (and as a good marketing practice) does not require a birth certificate or other proof of age at the time of purchase. In fact, it is not until the insured dies and the death certificate accompanies the claim for payment that the insurer has documentation as to when the insured was born. So it is not until then that the insurer can compare the ages, meet its burden of proving that the age in the application was incorrect, and make the appropriate adjustment.

The misstatement of age provision provides a legitimate balance between the interests of the parties: Insurer – The insurer pays neither more nor less than is appropriate for the proper age of the insured at issue and avoids expensive litigation and loss of public goodwill inherent in defenses of claims on the grounds of improper age. This serves as a cost-effective escape valve for handling innocent mistakes.

Policyowner and beneficiaries – Even if a misstatement of age (a material misrepresentation) is found after the death of the insured, there is assurance that the proper amount of proceeds will be paid, uncertainty will be avoided, and litigation to obtain the rightful amount from the insurer will not be necessary.

An insurer that finds it charged premiums based on an incorrect age can make the adjustment of benefits even if the discovery is made after the policy became incontestable on the grounds that the insurer is not denying the liability to make payments but is merely adjusting an error in how much should be paid.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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