A life insurance shields from the financial burden that may incur on the family in case of the breadwinner’s eventuality. Moreover, there are life insurance plans that provide not only life cover but also an investment opportunity. To ensure financial stability during an unforeseen situation and to meet various financial goals, people opt for life insurance policies.
Since it provides a life cover, the proposed procedure isn’t simple and straightforward. It usually takes time to complete the proposal procedure, post submitting the proposal form, the underwriting team scrutinize the application. It is now up to the insurance company to give the life insurance or not, and if they are ready to provide the life cover, they will check the risk to decide whether it will be the same premium or with a loading.
Life insurance comes with a lot of clauses and conditions that prevent people from misusing the product. Because smoking and alcohol consumption leads to the loading in the premium, often, people make false claims or provide incorrect and misleading information in their application, to get their proposal acceptance or to have a policy without loading.
People often believe that they can lie on their insurance applications, and it is a pervasive myth that they can get away with it. However, it is untrue. There are several ways in which one can get caught, and that may further have to deal with the repercussions of submitting false information in a life insurance application. Not only is lying on your application is a fraud, but it’s also almost improbable to get away with a lie. It can also be deemed as “material misrepresentation”.
What are the most common lies in the insurance application?
No matter how unlikely it is, most of the people do end up lying on their application. Some of the most common lies are:
- Tobacco use
- Prior/current drug use
- Drinking Alcohol
- Cancer history — both the applicant and with family history
- Income – overstating the income to be eligible for higher insurance
- Pre-existing diseases if any
How do people get caught?
Insurance companies not only conduct a thorough background check and ask for pertinent documents but also have access to records maintained by the Medical Information Bureau (MIB) which is like a database that keeps track of major medical events. If they happen to suspect the applicant’s medical condition, they may also order a medical examination and ask to submit a detailed report of it, thereby further eliminating the probabilities of the applicant lying. The company may arrange a third party visit at one’s home, and medical tests like blood samples, urine samples, height-body information, blood pressure test, etc. may be conducted. If they also suspect any untruthful financial disclosures, they may order for individual finance and credit card reports from the applicant that will certainly restrict an individual from lying about his/her financial status.
What happens if one gets caught for lying in the life insurance application?
Despite people being aware of the repercussions of lying on an insurance application, some smart ones would still prefer doing it to evade from the extra premium costs or obtaining higher life cover. An applicant if caught, may have to deal with several consequences for lying. It can depend on the extent of the distortion being made on the application. Failing to disclose a piece of information in the insurance application may result in lower benefits being given out by the insurance company. Even though one might be eligible, they would refrain from the several benefits like coverage or increase in the premium or both. This also implies to the family of the applicant who would be responsible for the malicious act.
It may also lead to companies asking for higher premiums to the applicant, outlining it as a lack of business trust and a penalty for making a false declaration in the application. Even if one is healthy, a lie can result in higher premiums, and this may also be used as a reason by the companies to deny or reduce claims when the situation arises. This could have serious financial consequences on one’s family for which the life cover was supposed to buy for in the first place.
If the extent of lie too big, it may lead to cancellation of one’s insurance policy application, rejection of claims, rejection of death benefits to the insured’s family. If the policy is active and the lie is caught, it may also lead to termination of the life insurance policy.
Views expressed in this article are the personal opinion of Rakesh Goyal – Director, Probus Insurance Broker Pvt. Ltd