When an insurer discovers the insured understated her age on the life policy application, what action will the insurer take?

When an insurer discovers that the insured understated her age on the life insurance policy application, the insurer typically pays a reduced death benefit rather than voiding the policy or paying out the full amount. This practice relates to the principle of equitable adjustments in the underwriting process.

When the age is misrepresented, the insurer assesses the risk based on the information provided. If the insured's actual age is greater than what was stated, the premium paid would have been lower than what should have been charged for the correct age. As a result, the insurer would calculate the death benefit based on what the premiums would have purchased had the correct age been disclosed. This leads to the issuance of a death benefit that reflects the premium payments received rather than the full policy amount.

This approach ensures fairness both to the insurer, who relied on the accuracy of the application in determining risk and premiums, and to the insured, ensuring they are still covered under the policy albeit at a benefit level commensurate with the premiums paid. The adjustment made by the insurer balances the misrepresentation while still honoring the existence of the policy.