The test of materiality for a representation can be based on which of the following?

• A. The prudent-insurer standard
• B. The individual-insurer standard
• C. Both prudent-insurer and individual-insurer standards
• D. Neither prudent-insurer nor individual-insurer standards

Answer: (C)

Materiality in representations asks whether a stated fact would have influenced underwriting decisions. In life insurance, the test can be based on more than one standard, and that’s why the best answer acknowledges both possibilities. Under the prudent-insurer standard, the question is: would a reasonable insurer consider this information material when deciding whether to issue the policy or set the premium? It’s an objective view, focusing on what an average insurer would consider important. Under the individual-insurer standard, the question is: would this particular insurer have acted differently in underwriting or pricing if they’d known the truth? It’s a subjective view tied to the specific insurer’s own practices.

Because different jurisdictions or policies may adopt either standard, the test of materiality can be based on both. So a misrepresentation might be deemed material under the prudent-insurer standard, the individual-insurer standard, or both, depending on the context.