What Is the Effect of an Incontestability Clause

question 36

Multiple Choice

What is the effect of an incontestability clause?

• A) The insured cannot file a claim more than a specified time following the insured event.
• B) The insurer cannot challenge the information in the application after a specified time.
• C) The insured is required to not challenge the statements made by its own agent.
• D) The state is prevented from challenging any claim payment decisions of the insurer.
• E) The insurer is prevented from canceling an insurance policy due to nonpayment.

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Definitions:

Cost of Equity

The return that investors expect for investing in a company's equity, representing the compensation for their risk.

SML Approach

Security Market Line approach; a graphical representation of the expected return of investments as a function of their systematic, non-diversifiable risk.

Cost of Capital

The rate of return that a company must earn on its investments to maintain its market value and satisfy its shareholders or debtholders.

Future Inflation

Anticipated increase in the price level of goods and services in the future, affecting purchasing power.