Why You Should Never Lie on Your Insurance Application

iStock_000011809454XSmallInsurance fraud takes many forms, and filing a false claim for damages is only one of them. Many people understand that it’s illegal to make a claim when there’s no damage or injury, but not everyone realizes that lying on an insurance application is also insurance fraud. At a minimum, it can void your insurance policy and, at worst, it can land you in prison. Before you decide to fudge some information on your insurance application form, take the time to understand what the implications are of such a decision.

According to the Coalition Against Insurance Fraud, insurance companies are confronted with an $80 billion problem each year in the form of fraud. Consequently, as a consumer, you are paying for this problem as part of your overall insurance premium. Insurance companies also take seriously the possibility of any fraud committed in the insurance process.

When trying to purchase an insurance policy, you are generally asked to complete an application that the insurance company then uses to underwrite and price your policy. When you purchase your policy, it becomes a contract with the insurance company and is predicated on the facts that you provided. If the facts are subsequently determined to be untrue, your policy will be cancelled. The insurance policy contains a section called “conditions” where the terms of the relationship with the insurer are laid out. This is different than the rest of the policy which contains details about the actual coverages.

Within the conditions, there is a bullet point regarding concealment and fraud. It states clearly that intentionally misrepresenting or concealing information relating to the insurance causes the policy to be voided. It further states that the concealment and fraud are grounds for cancellation whether before or after a loss. This is important because so many people only think of fraud in terms of claims matters. However, fraud is a very real part of the actual application process and must also be avoided when sourcing coverage.

The policy’s conditions generally refer to intentional concealment or misrepresentation. While it may not be your intent to misrepresent any information to the insurance company, it’s still possible that you stated something incorrectly within your application. This does not necessarily constitute fraud, but it can cause a problem when there is a loss. The best way to avoid any ambiguity is to review your application carefully and answer questions fully and truthfully. If you have any thoughts of trying to lower your premium based on different responses, you should know that you’re putting your coverage at risk.

If you are unsure about how to answer a question during the application process, it’s important to discuss the concern with your insurance agent or the insurance company. They can assist with a clarification of the question to help you better respond. Many of the questions may also relate to prior losses and claims. Much of this information is available through insurance company databases that are shared by multiple insurance companies. If you have had a prior claim, it’s likely that your insurance company already knows about it or can easily find out about it. By not truthfully answering the question, you will immediately negate any coverage you might have had.

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