New Jersey Life and Health State Practice Exam

Which of the following best describes a warranty in the context of insurance applications?

1. A basis for denying claims

2. A statement taken as guaranteed true

3. A projection of future losses

4. A suggested improvement in coverage

The correct answer is: A statement taken as guaranteed true

In the context of insurance applications, a warranty refers to a statement made by the applicant that is taken as guaranteed true. This means that the applicant is affirming that certain facts are correct and will remain true throughout the life of the policy. If a warranty is found to be untrue, it can lead to the denial of claims or the insurance policy being voided, because the insurer relies on these warranties as a fundamental basis for accepting the risk. Understanding this definition is crucial, as warranties carry significant weight in underwriting and the claims process. The insurer expects that the guaranteed statements about the applicant's circumstances (such as health status, property conditions, etc.) are accurate and complete. If any of these statements are misleading or incorrect, it can fundamentally alter the agreement between the insurer and insured. In contrast, the other options do not correctly define what a warranty is in this context. For instance, while a warranty can serve as a basis for denying claims if untrue, that is not its defining characteristic. Additionally, projecting future losses or suggesting coverage improvements relates more to estimations and modifications rather than truth affirmations about the applicant's current state. Thus, the framing of a warranty as a guaranteed truth is essential to understanding its role in insurance applications.