NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance
Ms. Iyer, a 35-year-old, buys a term plan. She signed the proposal form but did not mention that she has been a regular smoker. She dies in year 2 and the insurer discovers this. Which principle is most directly relevant to the insurer's right to repudiate the claim?
Utmost good faith is the relevant principle. Insurance requires the proposer to disclose every material fact honestly, and smoking status materially affects mortality risk. Concealing it breaches this duty and may allow the insurer to repudiate the claim, subject to the applicable law.
- AUtmost good faithCorrect
- BInsurable interest
- CProximate cause
- DContribution
Explanation
Insurance contracts require the proposer to disclose all material facts truthfully. Smoking status is material to mortality risk, so non-disclosure breaches utmost good faith. Insurable interest, proximate cause and contribution do not address concealment.
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