Certified Financial Consultant (CFC) Practice Exam 2025 – The All-in-One Guide to Exam Success!

When an insured hides critical information during the application process, this can be classified as material misrepresentation or fraud. Insurance contracts rely heavily on the principle of utmost good faith, meaning both parties—insurer and insured—must be honest in their dealings. If an insurance company discovers that the insured concealed significant information that could have influenced the underwriting decision, it has the right to deny the claim.

In this scenario, the act of concealing information is a breach of the trust that underpins the insurance agreement. As a result, the insurer can refuse to pay the death benefit, as the risk taken on was based on incomplete or misleading information. The insurer's assessment of the risk was altered due to the undisclosed information, which, if known, could have led to a different underwriting decision or even the refusal to issue the policy entirely. Thus, the appropriate course of action for the insurance company in such a case is to refuse payment of the death benefit due to the fraudulent concealment.