Hawaii Life & Health Insurance Exam

The incontestability provision in a life insurance policy provides that after the policy has been in force for a stated period (typically two years), the insurer:

1. ACannot void the policy or deny a claim due to a misstatement on the application, except in cases of fraud where allowed by lawCorrect
2. BMust double the death benefit
3. CMay cancel the policy for any reason
4. DMay raise the premium based on the insured's health

Why: The incontestability clause bars the insurer from contesting the policy (voiding it or denying a claim) based on misstatements in the application once it has been in force for the contestable period, usually two years, giving beneficiaries certainty. It does not let the insurer cancel at will, nor does it increase the death benefit or permit premium increases based on health. Its purpose is to protect the insured/beneficiary from having a long-standing policy challenged over an old application error.

For a life insurance policy to be valid, when must the policyowner have an insurable interest in the insured?

1. AAt the time of the insured's death
2. BContinuously for the entire life of the policy
3. CAt the time the policy is applied for and issuedCorrect
4. DOnly if the beneficiary is not a family member

Why: In life insurance, insurable interest must exist at the inception of the contract (when the policy is applied for), not at the time of loss. This differs from property insurance, where insurable interest must exist at the time of the loss. Requiring it continuously is incorrect: for example, a business may keep key-person coverage even after buying the policy, and a divorced spouse's policy can remain valid. Making it depend on the beneficiary's relationship confuses insurable interest (a relationship between owner and insured) with the separate question of who receives the proceeds.