PSI Life Exam Practice Test

When is an insurance company considered to know facts material to a risk?

1. When the policy is first issued

2. When the intermediary learns of a material fact

3. When the claimant files a complaint

4. When the company conducts a risk assessment

The correct answer is: When the intermediary learns of a material fact

An insurance company is considered to know facts material to a risk when the intermediary, such as an agent or broker, learns of a material fact. This is because intermediaries act on behalf of the insurance company and are generally required to communicate relevant information to them. Material facts are those that could influence the insurer's decision to provide coverage or the terms of that coverage. When an intermediary becomes aware of such information, it is considered that the insurance company is also aware, as the intermediary has the duty to share that information with the insurer. This principle highlights the importance of communication within the insurance transaction process and ensures that the insurer is making informed underwriting decisions based on the complete risk profile. In contrast, there are other stages in the insurance process—such as when the policy is first issued, when a claimant files a complaint, or when the company conducts a risk assessment—where the company may not necessarily be fully aware of all relevant material facts. For instance, the initial issuance of a policy could occur without the entire context of the risk being presented, and claimant complaints often arise after the fact, rather than during the underwriting phase. Conducting a risk assessment pertains to the evaluation process of risks but does not imply that existing material facts have been communicated to