Pamela Applies for a Life Insurance Policy with Forever Young

question 19

Multiple Choice

Pamela applies for a life insurance policy with Forever Young Insurance Company.When completing the application form about past surgeries,Pamela forgot about a past outpatient surgery when she had an infected hang-nail removed and her toe treated.One year after issuing the policy,Pamela died suddenly from a brain aneurysm.Forever Young denies payment under the policy based on misrepresentation.If Pamela's sister,Paula,sues Forever Young,she will most likely

• A)win,because once an application has been accepted,an insurer may not use a misrepresentation on the application to avoid liability.
• B)win,because Pamela's misrepresentation was not a material fact and did not increase Forever Young's risk in insuring Pamela's life.
• C)lose,because Pamela's application contained a misrepresentation of material fact.
• D)lose,because an insurer can always use any misrepresentation on an application to avoid paying.

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Definitions:

Lower of Cost

A principle that states inventory should be recorded at the lesser of its historical cost or the current market value, to ensure assets are not overstated.

IFRS

International Financial Reporting Standards, which are international accounting standards set by the International Accounting Standards Board to ensure transparency and comparability of financial statements worldwide.

Direct Costing

An accounting method that only considers variable costs as product costs, while fixed costs are treated as period expenses.

Inventory Errors

Mistakes in accounting for inventory that can lead to inaccuracies in financial reporting, affecting cost of goods sold and net income.