Life Insurance Policy: Scuba Diving Scenario

What is a whole life insurance policy?

A whole life insurance policy is a form of permanent life insurance that covers an individual's entire life. The policyholder is guaranteed a death benefit, a savings component known as cash value, and level premiums for the duration of the policy.

What happens if an insured individual engages in scuba diving after purchasing a policy?

If an insured individual engages in scuba diving after purchasing a policy without any scuba exclusions, what will the insurer pay to the beneficiary in case of a scuba-related accident?

Answer

The insurer will pay the full policy amount to the beneficiary, despite the insured individual engaging in scuba diving after the policy was issued.

Explanation

In the scenario presented, the insured individual (referred to as P) purchased a $50,000 whole life insurance policy in 2005. At the time of application, P answered "No" to the question of whether or not they engage in scuba diving, and the policy was issued with no scuba exclusions.

However, P took up scuba diving in 2010 and unfortunately passed away in a scuba-related accident in 2011. Despite the change in P's activities post-policy issuance, the insurer is obligated to pay the full $50,000 policy amount to P's beneficiary.

This is because the policy was originally issued without any scuba exclusions based on the truthfulness of P's response at the time of application. Therefore, even though the insured individual started engaging in scuba diving after acquiring the policy, the beneficiary is entitled to the full policy benefit.