PSI Life Exam Practice Test

An insurer may cancel a policy midterm for all the following reasons EXCEPT:

1. Change in the insured's residence

2. Change in marital status

3. Non-payment of premium

4. Fraudulent application information

The correct answer is: Change in marital status

An insurer typically has the authority to cancel a policy midterm for several justified reasons, which include non-payment of premium and fraudulent application information, as these directly affect the risk assessment and the insurer's exposure to loss. When it comes to changes in the insured's residence, this can alter factors such as risk level, which may lead to a cancellation if the new location is deemed to present a higher risk than the previous one. Similarly, if an insured provides fraudulent information during the application process, the insurer can void the policy since it undermines the principles of good faith and accurate risk assessment. On the other hand, a change in marital status does not generally provide sufficient grounds for an insurer to cancel a policy. Marital status can affect premiums in some situations, but simply changing marital status is not typically associated with the type of underlying risk or exposure that leads to policy cancellation. Most insurers recognize that personal circumstances such as marriage or divorce do not inherently indicate an increased risk that warrants canceling a policy midterm. Therefore, changing marital status stands apart as a reason that does not justify cancellation.