30 Mar Lying to Your Insurance Agent is a Dumb Way to Try to Save Money
On the show “Law & Order: Criminal Intent,” Detective Robert Goren (Vincent D’Onofrio) utters one of my favorite lines of dialogue ever, stating emphatically: “Everyone lies, all the time.” I don’t know exactly what it is that appeals to me about this particularly brutal assessment of mankind other than it shows just how jaded Goren really is, but in a way, I get it.
Although I’m not a (fictional) homicide detective, I, too, come across people who lie to me in the course of my profession. In the insurance business, the lies are fairly routine and the liars are rarely clever. (For example, a client and I were recently discussing a potential life insurance plan. When I asked him his age, he shaved ten years off of the true number (in the presence of his attorney—who said nothing—of course) and expected me to take him at his word and forego corroborating documentation. However, I insisted, much to his chagrin. To not do so would be a breach of my own professional ethics, and failure to do my due dilligence.) True, the lies I’m told are fairly innocuous, but it got me thinking about why people lie on insurance applications and whether or not they understand the potential consequences.
While many of us justify these “little, white lies” as falling under the “oops! my mistake! no harm, no foul” category, that’s not how the insurance company will likely feel about any lies they uncover on your insurance application. In fact, the consequences could potentially cost you dearly. Here are three reasons that lying on an insurance application isn’t worth the risk:
The insurance company will uncover the truth and charge higher premiums. Despite the attempt to hide relevant information, an insurance company is likely discover the missing information, and approve the policy with the higher premiums that you were trying to avoid.
The company may investigate closer and decline your application. At the extreme, the company may decline the application entirely. This outcome becomes more likely if the application contains multiple lies or missing disclosures.
The insurance company may discover the lie upon your death and reduce or cancel your death benefit. This is the worst of all possible outcomes. The company could discover the lie after your death – perhaps through an autopsy report – and either reduce or completely eliminate your death benefit. There is a two-year period of contestability between the time of your insurance application and your death, within which the insurance company can contest the payment of benefits. In addition, if the application contains outright fraud – your death was caused by conditions known to exist at the time of your application – they may be able to avoid paying benefits even after two years, depending upon laws in your state.
When filling out an application for life insurance, be honest and forthright. Realize that the insurance company will seek third-party verification if there is any doubt at all about any disclosures. And many will conduct third-party investigations as a matter of course. Final note: Be forewarned that any material disclosures in your application will be thoroughly investigated.
Remember, honesty is the best policy…and essential to obtaining the right life insurance policy.