The price of your life insurance policy often depends on your answers to a range of application questions, plus the results of your life insurance medical exam.
"I don't use tobacco": The desire to get affordable life insurance drives many applicants to not only check the "nontobacco" boxes on their applications but also to abstain for several weeks before their medical exams so that nicotine -- or, more precisely, cotinine -- does not show up in their lab results.
"We probably see more of this than anything else," says Brian Ashe, a past chairman of the Life and Health Insurance Foundation for Education. 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.
"In their own minds they are not tobacco users, but in life insurers' eyes they are, in terms of disclosure," Ashe says.
If a life insurance company finds out a person lied about tobacco use after he dies of a related cause, there are two common outcomes: The company could alter the death benefit to be equal to the amount the person would have gotten had they paid tobacco rates, or the company could rescind the entire policy. An insurance company's range of remedies depends on state law. Ashe says a rescission is generally limited to within the first years of a policy, known as the contestability period.Lynn Patterson, the chief underwriter for alternative and strategic distributions at ING, says: "It doesn't pay to lie on your application if the company would have insured you, but at a higher rate. For example, had I told the truth about tobacco I would have gotten the policy at a tobacco rate. If I die within the two-year contestability period (after lying about tobacco use), the company can deny the claim, and the family is not protected."
"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 pop up in a person's criminal history or medical records (everything from drug treatment to a casual mention of it to a physician).
If a life insurer suspects drug use, it could ask for a lock of hair, where evidence of drugs can reside for up to a year after use. "I have seen people who have been approached to get a lock of their hair go get their heads shaved," Ashe says.
Drug use doesn't necessarily knock you out of contention for a policy. Ashe says some insurers will issue policies to marijuana users (if they're not abusing the drug), but not at the best rates.
"I'm not depressed": Neglecting to mention depression is common, Patterson says. Depression can be impossible to detect by an agent or the paramedical examiner who performs the medical review. However, any medical diagnosis of depression will be apparent in your medical records.
"I've had only that one DUI": Lying about drunken driving convictions happens, but Patterson notes that lies about the second, third and fourth DUIs are most common.
"I've had just two moving violations": Applicants are also prone to misrepresenting the number of moving violations they have racked up.
"They may not admit to No. 3 and 4," Patterson observes.
But the truth about DUIs and moving violations is usually revealed when the insurance company pulls your motor vehicle record, or MVR. And if what you say about DUIs and moving violations does not match up with what's in your record, insurance underwriters will always give more credibility to the record if it contains more information than what was provided on the application.
A gross discrepancy will alert the underwriter to look for other possible material misrepresentations.
"When the client tells the truth and it matches on the MVR, we feel better that the whole risk is being portrayed to us," Patterson says.