​Honesty is the Best Policy When Applying for Insurance

Most of us learned honesty is the best policy as children. Even so, lessons learned are sometimes forgotten. In other cases, they might be sidestepped for expedience. A recent study found that nearly 1 in 3 people fibbed when applying for insurance. 

Some might argue that telling a white lie or even a whopper can be justified at times. But when it comes to insurance, there can be serious downsides to this strategy. Honesty really is the best policy.

An untruth in regard to insurance goes beyond a white lie, even if it seems like a small thing at the time. Lying on your insurance application is called misrepresentation or non-disclosure. It can invalidate your insurance contract. In some cases, lying on an insurance application can even lead to fraud charges. There are other considerations as well, even if the fib doesn’t land you in front of a judge.

Your insurance contract is based on a combination of information you provide as well as underwriting the insurer does on its own. In the underwriting process, the insurer verifies the information you’ve provided and checks other sources as well. 

If the information you provide is untruthful, does the insurer have to honor a claim for your policy? In some cases, the answer is no. 

Here are some of the possible outcomes from lying on an insurance application:

Increased premiums: As an example, if you tell the insurer you have no speeding tickets, and then through the underwriting process, they learn you got one last week, expect a higher premium than you were quoted. The underwriting process verifies the information you provide so the insurer can price the risk accurately.
Denied application: Some rating factors, such as a DUI, may make you ineligible for coverage with certain insurers. If an insurer discovers a DUI or similar rating factor that you didn’t divulge, they may deny coverage or cancel your policy.
Denied claims: If you have a claim but have fibbed about something in your insurance application, the insurer might deny the claim.
Canceled policy: If you lie about something that makes you uninsurable with an insurance company, they can cancel the policy. Cancellation due to non-disclosure can make the search for a replacement policy a pricey experience.
Fraud charges: In some unfortunate cases, misrepresentation or non-disclosure can even lead to fraud charges, possibly resulting in fines or jail time.

Of these possibilities, adjusted premiums or denied applications are the most likely. But denied claims or fraud charges are possible in some situations as well. 

Honesty is the best policy in most areas of life, including insurance. Have a candid conversation with your agent or broker about your insurance needs and history. Your agent or broker can often help you find better ways to save on insurance premiums or find another insurer for you that offers the best rates for your particular needs.