Insurance Applications: Small Lies Can Create Big Problems

Insurance Applications: Small Lies Can Create Big Problems

Is it wrong to lie on an insurance application? Many believe that it’s no big deal, like lying to the IRS. In reality, it can have serious consequences, like lying to the IRS. If an insurance application contains false or incorrect information, a claim that may have otherwise been covered may end up being denied. To keep this from happening, it is important to understand what is required when completing insurance applications.

When it comes to completing applications, whether it’s for business, homeowners, auto or another kind of insurance, not all lies are created equal. A majority of states have statutes that strictly limit an insurance company’s ability to deny coverage because an application contains false information. These statutes aren’t intended to protect those who lie on their applications, but to prevent insurance companies from relying on insignificant misstatements to deny coverage.

Under these statutes, insurance companies are typically allowed to deny coverage only if the misrepresentation, omission, concealment of fact or incorrect statement is significant enough to warrant such a harsh result. In other words, only material misstatements, omissions, etc. justify a denial of coverage.

False or undisclosed information submitted in an application is generally considered material if the insurer would have altered the terms of the policy had the true facts been known, or if the true facts would have served as a basis for denying the policy application. In Florida, for example, an insurance company can deny coverage under a policy only if:

  • the misrepresentation, omission, concealment, or statement is fraudulent or is material either to the acceptance of the risk or to the hazard assumed by the insurer; or
  • if the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith 1) would not have issued the policy or contract; 2) would not have issued it at the same premium rate; 3) would not have issued a policy or contract in as large an amount; or 4) would not have provided coverage with respect to the hazard resulting in the loss.

In some states, insurance companies don’t need to establish that a false statement was made knowingly or intentionally. Even innocent mistakes can be used to deny coverage if they are material. In other states, like Massachusetts and Tennessee, an insurance company cannot avoid coverage unless a misrepresentation increases the risk of loss or is made with the actual intent to deceive.

Depending on the applicable law, if an insurance company is able to establish the materiality of a misstatement or that it was made with the actual intent to deceive, it may be able to deny a claim or void the entire policy. In the event of a claim, insurance applications are often reviewed to determine whether there are any material misstatements that can be used to deny coverage. This should be incentive enough to complete applications truthfully and accurately.

Please contact us if you have questions or concerns about completing an application for insurance.

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