What is the effect of a misstatement of age on the policy?

The correct understanding of the effect of a misstatement of age on a life insurance policy is that the coverage amount is retroactively adjusted. When the age of the insured is misstated on the application, the insurance company is entitled to make adjustments based on the correct age. This is because premiums are usually based on the insured's age at the time the policy is issued; a younger individual typically pays lower premiums compared to an older individual.

If the correct age indicates that the insured is older than originally stated, the insurer may reduce the coverage amount to align with what the premium would have purchased at the correct age. Conversely, if the insured is younger than stated, the company might provide an increase in coverage without a change in premium, depending on company policies regarding adjustments for misstatements.

This adjustment serves to ensure that the risk the insurer is taking on is accurately reflected in the coverage provided, which is vital for both the insurer's financial health and equitable treatment of policyholders.