Life Insurance · Component 3: Implement a recommendation (25%)
Underwriting, Application & Policy Provisions
How insurers classify risk and how a life contract is formed and kept in force: underwriting factors and requirements, ratings and exclusions, temporary insurance, delivery and the first premium, the duty to disclose and two-year contestability, misstatement of age, suicide clauses, grace periods, reinstatement, insurable interest, minors and the agent's role.
Implement a recommendation·3 min read·6 sections
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Must-know for the exam
✓Unless the contract says otherwise, cover starts on delivery, first-premium payment and no change in insurability since application (Insurance Act (BC) s. 48(1), current to 6 Oct 2026).
✓A dishonoured cheque means the premium was not paid (s. 49(1)). The grace period does not apply to the first premium.
✓Grace period: 30 days from and excluding the due date; death in grace is covered, less the premium (s. 50(2)-(3)).
✓Material non-disclosure makes the contract voidable; after two years in force it is incontestable unless there is fraud (s. 51-52).
✓Misrepresentation on an increase affects only the increase (s. 51(3)). Disability benefits are outside the two-year life rule (s. 52(1)(b)).
✓Misstated age adjusts the benefit to what the premium buys at the true age; above the age limit, voidable within 5 years if acted on within 60 days (s. 54).
✓Suicide exclusions are contractual, typically two years, and restart from the latest reinstatement (s. 56(2)).
✓Reinstatement within two years: apply, pay arrears with interest, prove insurability. BC adds 30 days after grace with no evidence (s. 57(2)-(3)).
✓Insurable interest: own life, spouse, child, grandchild, supporter, employee, pecuniary interest; otherwise written consent; parents consent under 16 (s. 45-46).
✓Minors 16 and over can contract for insurance (s. 72). The 10-day rescission right is standard practice (CISRO objective 14.1).
▸On this page · 6 sections
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Traps that cost marks
→Voiding the policy, or adjusting in the wrong direction, when age was understated.
→Assuming a misstated age can only reduce the death benefit.
→Multiplying the premium by the table number instead of adding a percentage per table.
→Confusing a flat extra with a percentage table rating.
→Treating a temporary flat extra as permanent, or charging it all at once.
→Thinking reinstatement needs only the current premium.
→Forgetting that underwriting limits apply to total coverage, including existing policies.
→Applying a table rating to the policy fee.
Why it matters on the exam
Component 3 carries 25% of the Life exam. Questions turn on dates (grace periods, the two-year limit, reinstatement windows) and on applying statutory rules to a claim: is the policy in force, can the insurer contest it, and what is payable.
Underwriting
•Client-level factors: age, sex, health, family history, occupation, lifestyle and avocations, smoking.
•Requirements: application and agent's report, paramedical or medical exam, attending physician's statement, MIB check, motor vehicle report, inspection report, financial underwriting.
•Substandard risks: table ratings (often 25% per table), flat extras per $1,000, exclusion riders.
•Company-level pricing: mortality, expenses, investment returns, lapses. Reinsurance spreads large risks without changing the client's contract.
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Frequently asked questions
How long is the contestable period on a life policy?
Two years: once the contract has been in effect for 2 years during the insured's lifetime, non-disclosure or misrepresentation does not make it voidable unless there was fraud (Insurance Act (BC), s. 52(2)).
How long is the grace period for a life insurance premium?
30 days (28 for an industrial contract), or longer if the contract allows (Insurance Act (BC), s. 50(2)).
