Colorado Life Producer License Practice Test

What is the key difference between a representation and a warranty in insurance?

1. Both are equally significant

2. A representation is assumed to be true, while a warranty is absolutely true

3. A representation is always written, while a warranty is verbal

4. A warranty has no bearing on the insurance policy

The correct answer is: A representation is assumed to be true, while a warranty is absolutely true

The key difference between a representation and a warranty in insurance lies in their truthfulness and implications within the policy. A representation is a statement made by the insured that they believe to be true and is generally assumed to be accurate, but it may not necessarily be completely true. This means that if a representation is found to be false, it does not automatically void the policy unless the insurer can prove that the false representation was material and influenced the underwriting decision. On the other hand, a warranty is a promise or guarantee that certain conditions or facts are absolutely true, and it must always hold true throughout the policy term. If a warranty is found to be untrue, the insurer has the right to void the policy, regardless of whether the untrue statement was material to the risk. This strict requirement makes warranties more stringent than representations. This distinction is critical for both insured individuals and insurers, as it defines the legal obligations and the consequences of any statements made during the application process. Understanding the nature of representations and warranties helps in comprehending how insurance contracts function and the responsibilities of all parties involved.