What is a Misstatement of Age?
A misstatement of age is a provision in some life insurance policies that allows the insurance company to adjust the policy if they later find out that the insured didn’t provide them with the correct age at the time of policy purchase.
Age and life insurance premiums
The age of an individual plays a big role in how much life insurance will cost to cover them. Each birthday means life insurance gets more expensive because insurers charge the least to people who have the longest left to live.
That means that misstating your age, even by a year or two, on a life insurance application results in premiums that aren’t reflective of what the policy would have cost had you been truthful.
To protect themselves if they discover that you didn’t report the correct age on your life insurance application, many insurers include a misstatement of age provision, also called a misstatement of age clause.
How a misstatement of age provision works
This clause allows the insurance provider to adjust the policy’s death benefit according to the actual age of the insured.
Usually, this comes down to a relatively simple calculation. They determine the premium that should have been paid had they known the insured’s true age. They subtract the actual premiums paid from that number, arriving at the difference that the policy owner didn’t pay because of the misstatement. They then subtract that difference from the death benefit before distributing the benefit to the policy’s beneficiaries.
A misstatement of age provision essentially allows insurers to collect money that they should have been paid even after the insured has died.
How this provision benefits consumers
While a misstatement of age clause obviously serves the insurance provider, it actually benefits the policy owner, too. Without the clause in place, the insurer could outright cancel the policy if they discover that the insured misstated their age.
Because insurers usually don’t investigate any details about their insureds until they have passed away and it’s time to pay out their death benefit, beneficiaries could get left in the lurch. If an insurance company discovers that an insured didn’t state the correct age on their application after they’ve died, they could deem the misstatement fraud and cancel the policy. That would leave the policy beneficiaries without any money from the policy, despite the fact that the policy owner had continually made premium payments.
With the misstatement of age provision, beneficiaries may receive less money — but they won’t be left with nothing.