South Carolina Life Insurance Practice Exam

In what scenario would misrepresentation on an insurance application be considered fraud?

1. When it is intentional and material

2. When it is unintentional but material

3. When it is intentional but not material

4. When it is unintentional and not material

The correct answer is: When it is intentional and material

Misrepresentation on an insurance application is classified as fraud when it is both intentional and material. Intentional misrepresentation occurs when the applicant knowingly provides false information with the intention of deceiving the insurer. Material misrepresentation refers to information that is significant enough to affect the insurer's decision regarding coverage or premium rates. If the insurer had known the truth, it may have influenced their underwriting process. For example, if an applicant deliberately states that they have never smoked, while they are a regular smoker, this misrepresentation is intentional. Additionally, smoking is a material risk factor that insurers consider when determining policy eligibility and pricing. Therefore, the combination of intentional action and material impact defines this scenario as fraudulent behavior. This is essential for ensuring that all parties in an insurance contract operate on a foundation of honesty and transparency, which is crucial for the industry’s integrity.