An insured has a disability income policy with a change of occupation provision. What is the insurance company’s likely action if the insured changes to a less hazardous occupation without notification?

When an insured has a disability income policy with a change of occupation provision and changes to a less hazardous occupation without notifying the insurer, the insurance company typically adjusts the policy terms to reflect the reduced risk associated with the new occupation. In this scenario, the most logical action for the insurer is to prorate the benefit and refund any premium difference that would apply due to the change in occupation.

The rationale for this is that the risk of becoming disabled while engaged in a less hazardous occupation is lower; therefore, the premiums charged for that risk should also be lower. If the insured did not inform the insurer of the change, the insurer's original terms still apply, but they would need to adjust to reflect the correct risk level going forward. By prorating the benefit, the insurer ensures that the policy aligns with the current risk status of the insured. The refund of the premium is a fair adjustment since the insured is effectively paying for a higher risk policy than necessary.

This action not only reflects sound underwriting principles but also maintains the integrity of the insurance process by adjusting for the actual risk involved.