Lying on a life insurance application? Beware of the risk you run.
They say honesty is the best policy, and this is particularly true for life insurance. It’s been estimated that about 5% of applicants lie when applying for life cover, almost always to try and get better rates.
Mostly people lie about their health, lifestyle or pre-existing conditions, such as not disclosing old health issues or lying about being a smoker in order to get better rates or avoid unwanted exclusions, but it’s also common to lie about income to get higher coverage or misrepresent other risk factors.
Insurance companies take rigorous checks in the event of a claim to assess that correct details were provided at the time of application. If it is deemed that information was misheld, the company is completely within their rights to reject the policy.
What happens when you lie on a life insurance application?
- Deception can be used by insurers to reject a claim entirely, meaning you might spend years paying for nothing.
- Life insurance pays out on death. For obvious reasons you will not be able to negotiate if your insurer decides to reject a claim, so this task will be left to your grieving beneficiaries.
- Insurance fraud is a crime. Depending on the nature of your falsehood there may be legal consequences.
- If they uncover the truth, insurers might impose a significant price increase, or readjustment, rather than cancelling your policy
- Your deception may be recorded in an insurance database, giving you a black mark on the record that all future insurers will look at. Lying on your life insurance policy could lead to you being rejected for car or home insurance later.
What the law says: Your duty of disclosure
Life insurance, trauma insurance and income protection insurance policies are legal contracts that deal with life-altering events and big sums of money. This means that both you and your insurer have legal responsibilities that are clearly laid out in the policy. When you sign an insurance policy, then legally speaking you have a duty of disclosure. This refers to your legal obligation to tell the truth. “Forgetting” to tell your insurer something counts as a lie. If you are getting a life insurance policy on someone else’s behalf, then you take on the duty of disclosure, not them.
This duty of disclosure law says that you must:
- Disclose any information you are aware of that affects whether or not the insurer will cover you, or affects the type of cover they would be willing to provide. This requires you to be honest with details like health, income, employment status, age, smoking status and others.
- Disclose any information you are aware of that a reasonable person would assume is relevant to life insurance. This more broadly covers similar information.
In other words, if your lie affects the policy your insurer offers, or you failed to tell your insurer something that a sensible person would assume is related to life insurance, then you have breached your duty of disclosure, and are officially lying.
Legally speaking, the burden is on you to provide complete and accurate information when signing a policy.
Insurance companies will conduct independent investigations, employing their own medical experts, checking autopsy and other medical details, accessing insurer databases to find out if you’ve had any issues with other insurance companies and taking other actions they feel are necessary.
Common reasons people lie on their application
- Lying about smoking or drug use: This is one of the most common life insurance lies, and also one of the easiest to find out. Smoking leaves a distinct impact on the body and has close ties to many health issues, as do many other drugs. Testing for these is cheap and easy, any many insurers will ask you about it first, and then run a test to find out if you’re being honest.
- Hiding a history of depression: Most insurers will ask whether you have previously suffered depression as this can impact risk levels. Untruthfully answering no is common, as people feel it is not verifiable and should not unfairly raise their premiums. You should still be honest though, firstly because concerns about being found out may prevent you from getting effective treatment or medications, and secondly because you might unintentionally close the door on a policy with good benefits in that area. Many policies will still cover you at reasonable cost if you answer this question truthfully, meaning it’s more worth finding one of these than lying.
- Family history and pre-existing conditions: Family history is a strong indicator of how likely you are to suffer congenital health issues, while pre-existing conditions are those like former bouts with cancer or ongoing unresolved health issues. Lying about these is ultimately pointless because the main advantage is more cover for these particular issues, but it almost certainly means claims for these will be rejected or your policy cancelled. Instead, disclose these to your insurer and work with them to find a way to get cover for them at a reasonable price, or get them explicitly excluded to keep premiums down.