Wallace, age 29, purchased a $300,000 five-year renewable and convertible term i

Question

Wallace, age 29, purchased a $300,000 five-year renewable and convertible term insurance policy. In answering the health questions, Wallace told the agent that he had not visited a doctor within the last five years. However, he had visited the doctor two months earlier. The doctor told Wallace that he had a severe heart problem. Wallace did not reveal this information to the agent when he applied for life insurance. Wallace died three years after the policy was purchased. At that time, the life insurer discovered the heart ailment. Explain the extent of the insurer’s obligation, if any, with respect to payment of the death claim.

Explanation / Answer

A contract of life insurance is a contract to be entered into in 'utmost faith' or 'uberrimae fides', which means that the insured has to disclose full facts about his health before the contract is entered into. As in the subject case, the insured has not disclosed his pre-existing ailment, the contract can be rescinded by the insurer and he has no liability on the claim.

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