- Insurance applicants often fudge on issues ranging from DUI's to drug use. The premium for your life insurance policy often depends on your answers to a range of application questions, plus the results of your life insurance medical exam.
Some applicants succumb to the temptation to lie on their applications, hoping their misrepresentations will garner them lower rates. Some of the most frequent lies discovered by insurance companies in screening the applications are discussed below.
"I don't use tobacco." The desire to purchase affordable life insurance drives many applicants to not only check the "nontobacco" box on their application bu to also abstain for several weeks before their medical exams, so the nicotine or more accurately cotinine, does not show up in their lab results. And some applicants may lie unintentionally. Applicants who use nicotine in other forms, such as a nicotine patch or chewing tobacco, may not realize they are in the "tobacco" category. They may not think they are tobacco users, but in the eyes of the life insurance company, they are tobacco users.
If a life insurance company discovers a person lied about tobacco use after he dies of a related cause, there are two common outcomes:
An insurance company's range of remedies depends on state law, and rescind the policy is usually limited to the first few years of the policy during the contestability period.
It really doesn't pay to lie on your life insurance application if the company would have insured you, but at a higher rate. If you had told the truth, you would have received the policy at the higher tobacco rate. Unfortunately, because you lied about your use of tobacco, and you die within the two-year contestability period, the company can deny your claim, and your family doesn't receive the benefits for which you intended. They lose their protection.
"I don't do drugs, and I'm bald." Many applicants try to mask illegal drug use. Even if blood and urine lab results come back clean, hints of drug use could show up in a person's criminal history or medical records. The medical records could contain a casual mention of drug treatment to a physician. If a life insurance company suspects drug use, they may ask for a lock of hair, where evidence of drug use can reside up to a year after last use. Drug use doesn't necessarily prevent you from obtaining a life insurance policy, but you won't get the best rates.
"I'm not depressed." Failing to mention depression is very common. Depression can be impossible to detect by an agent or a paramedical examiner who performs the medical review. Just keep in mind any medical diagnosis of depression will be noticeable in your medical records.
"I've only had that one DUI." It's the second, third, and forth drunken driving convictions that are most commonly omitted.
"I've only had two moving violations." It is also common for applicants to misstate the number of moving violations they have received, especially if they have received more than two or three.
The truth about DUI's and moving violations is most often revealed when the insurance company obtains your MVR - motor vehicle record. The insurance company examiner will give more credibility to the report than the information you provided. Always remember, if it is discovered you are misrepresenting or lying about one thing, the question will arise as to what else you could be misrepresenting or lying about. If you tell the full truth, and your truth matches the lab results and reports, the insurance company will have a much better feeling about accepting you as a risk they want to insure.
"There's no cancer in my family." An applicant's own history of cancer, along with cancer among immediate family members, will result in a higher life insurance cost, increasing the temptation to misrepresent the facts. Any history of the applicant having cancer is no doubt in the medical records, and so is a family history. It's very likely you have been asked this question on a number of occasions when providing your medical history or the medical history of your family.
"I don't plan to travel outside of the US." A number of applicants misrepresent their travel plans, even when they know they will be traveling in the near future for business. Some applicants will even "adjust" their plans, saying they will be traveling in a dangerous land for only two weeks when in fact they plan to reside there for an extended period of time.
"I make $120,000 per year on the side selling real estate." Some applicants will lie about their income, so they can receive more coverage than for which they are eligible. It is common for a financial supplement statement to be included with an application for life insurance. Insurance companies may obtain your credit report or ask an applicant to complete a detailed version of the financial supplement detailing assets, liabilities and other information.
If misrepresentations or omissions are found by an insurer before the life policy is issued, the insurer will adjust your rate accordingly based on the truth. An intentional lie will also cast the rest of your application under a cloud of suspicion wondering what else you may have lied about. That could compel the insurance company to examine everything more closely and possibly delay their decision.
Lies discovered after a policy is issued can come back to bite an applicant. Any lie caught within a policy's two-year contestability period can cause the insurer to scale down the death benefit or even rescind the policy, depending on state law.
After the first two years, a policy is generally incontestable, except where there is a question about "insurable interest" meaning someone took out a policy on someone else without qualifying to do so. For example, a spouse or a business partner generally has "insurable interest" in your life because he or she depends on your production of income. The life insurance application becomes part of the legal document that is the policy. So lies within the application become fraud. Consumers have to understand when they sign an application, the application becomes part of the contract.
Insurance companies may use any of the following to verify the information in your life insurance application:
Fulshear Insurance Group, Inc. works with 100+ life insurance companies to be able to provide you with a solution to your life insurance needs. Whether you are preparing for future protection of your family or purchasing key-man insurance, Fulshear Insurance Group, Inc. has a solution. Give us a call today 281.533.9067.