PSI Life Exam Practice Test

What is most likely to happen if a person provides false information on an insurance application?

1. The policy will be voided

2. The premium will decrease

3. The coverage will increase

4. The application will be accepted anyway

The correct answer is: The policy will be voided

When someone provides false information on an insurance application, the most likely outcome is that the policy will be voided. Insurance companies rely heavily on accurate information to assess risk and determine premiums. If false information is discovered—especially if it pertains to material facts that could affect the underwriting process—the insurer has the right to cancel the policy. This ensures that the company can maintain the integrity of its underwriting process and protect itself against fraud. In contrast, a decrease in the premium or an increase in coverage would not logically follow from submitting false information, as insurers would generally be providing less favorable terms to someone they deem potentially risky due to the misinformation. Similarly, accepting the application regardless of falsehoods contradicts the fundamental principle of risk assessment that underpins the insurance business model.