Life & Health Insurance Practice Exam 2026 - Free Practice Questions and Study Guide

The concept described by the failure to disclose a known material fact when applying for insurance is identified as concealment. In the context of insurance, concealment occurs when an applicant intentionally withholds information that is important to the insurer's decision-making process, particularly if that information could influence the underwriting decision or the terms of the policy.

Concealment is significant in insurance because it can affect the risk assessment conducted by the insurer. If an applicant knows of a condition or a circumstance that could lead to a claim and fails to disclose it, the insurer may issue a policy based on incomplete information, potentially leading to financial losses or disputes in the future.

Understanding concealment is crucial for maintaining the principle of utmost good faith, which underpins insurance contracts, where both parties are expected to act honestly and disclose relevant information. This contrasts with misrepresentation, which involves false statements, fraud that indicates deceit with intent to benefit unlawfully, and non-disclosure, which may imply a broader lack of information without the intention of hiding material facts. Each of these terms has distinct legal implications, but concealment specifically addresses the issue of active omission of known material facts.