South Carolina Life Insurance Practice Exam

What is a statement that, if untrue, may breach an insurance contract?

1. Policy exclusions

2. Law of Large Numbers

3. Acts of God

4. Policy limits

The correct answer is: Law of Large Numbers

The correct answer revolves around the principle that misrepresentations can lead to a breach of contract within the context of insurance. The "Law of Large Numbers" relates to the statistical concept that, as the number of incidents or observations increases, outcomes become more predictable, thereby allowing insurers to calculate risks and set premiums accurately. However, it does not directly pertain to statements that, if untrue, could breach a contract. On the other hand, a misrepresentation or an untrue statement of material fact made by the insured can lead to a breach of the contract. For example, if an applicant fails to disclose relevant information about their health or history that is critical to assessing risk, this can render a policy void at the insurer's discretion. Misleading information during the application process is significant, as it affects the insurer's assessment and decision-making. Misrepresentations can result in denial of claims or cancellation of the policy if discovered after a claim is filed, which aligns with the concept of truthfulness required in contractual agreements. The other options pertain more to factors influencing insurance contracts rather than statements that could breach those contracts due to their untruthfulness. Each of those concepts—policy exclusions, acts of God, and policy limits—are terms and conditions