Other Than Life (OTL) Practice Exam

Which of the following best defines misrepresentation in insurance terms?

1. Is the same as non-disclosure

2. Is a breach of warranty

3. Will automatically void a policy

4. Is an incorrect statement about a material fact

The correct answer is: Is a breach of warranty

The best definition of misrepresentation in insurance terms is found in the option that describes it as "an incorrect statement about a material fact." Misrepresentation occurs when an individual provides false information or omits a crucial detail that affects an insurer's decision to accept the risk or issue a policy. This false information can relate to various aspects of the insured's situation, such as their health status, prior claims history, or the nature of the insured property. Misrepresentation does not equate to non-disclosure, which involves failing to reveal pertinent information that should have been disclosed rather than actively stating something false. It also differs from a breach of warranty, which refers specifically to violations of terms agreed upon in the insurance contract. While misrepresentation can sometimes lead to voiding a policy, it does not guarantee automatic voidance; the consequences depend on the severity and materiality of the misrepresentation. Thus, identifying misrepresentation primarily hinges on recognizing the provision of incorrect statements about important facts.