What is the consequence of a misstatement of age on a disability policy?

• A. The policy is terminated and premiums returned
• B. The policy is terminated and premiums retained
• C. Benefits adjust to what the premium would have purchased
• D. Payments require adjustment based on rated premiums

Answer: (C)

The consequence of a misstatement of age on a disability policy is that benefits will adjust to what the premium would have purchased based on the correct age. Insurance policies are underwritten based on various risk factors, including the insured's age. If a policyholder accidentally misstates their age at the time of application, the insurer will recalibrate the benefits according to the age that correctly corresponds with the premiums paid.

For example, if an older policyholder states a younger age and pays premiums based on that, they may be entitled to lower benefits because the premiums collected do not correspond to the risk associated with their actual age. Therefore, the insurer would adjust the benefits to reflect what the policyholder's actual premiums would have purchased if they had accurately reported their age. This ensures that the policy remains fair and sustainable for both the insurer and the insured, maintaining integrity in the underwriting process.