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The Basics

Lies that could kill your life insurance

Continued from page 1

"There's no cancer in my family": An applicant's own history of cancer -- along with cancer among immediate family members -- will result in a higher life insurance cost, increasing the temptation to fudge.

Any personal history of cancer is no doubt in your medical records, and so is a family history. You were likely asked about it when you first went to your doctor's office and your family medical history was recorded.

"I don't plan to travel anywhere dangerous": Ashe says the number of applicants who misrepresent their travel plans has increased, especially as more parts of the world become dangerous.

Sometimes applicants will "adjust" their plans, such as saying they'll be traveling in a dangerous land for only two weeks when in fact they plan to reside there for an extended period of time.

"I make $100,000 a year fixing cars": Some people will lie about their income in order to receive more coverage than they're eligible for, Patterson says. He recalls a California couple who recently claimed that the husband was a self-employed mechanic making $100,000 a year, with a net worth of $100,000, and that the wife was a self-employed housekeeper making $50,000 a year.

When the red flags go up on a case like that, insurers may pull a credit report or ask an applicant to fill out a financial supplement that details assets, liabilities and other information.

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If misrepresentations or omissions are found by an insurer before the policy is issued, it will adjust your rate accordingly based on the truth. But an intentional lie will also cast doubt on the rest of your application, and that could compel the insurer to examine everything more closely and possibly delay its decision.

Lies discovered after a policy is issued can come back to bite an applicant. Any lie caught within a policy's two-year contestability period can cause the insurer to scale down the death benefit or even rescind the policy, depending on state law.

After the first two years, a policy is generally incontestable, except where there is a question about "insurable interest" -- meaning someone took out a policy on someone else without qualifying to do so. For example, a spouse or a business partner generally has "insurable interest" in your life because he or she depends on your production of income.

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Ashe points out that a life insurance application becomes part of the legal document that is the policy. So lies within the application become fraud. Consumers "have to understand that when they sign an application, the application becomes part of the contract. You'll see your application in the policy. If they thought of it in those terms, they might be more careful of their statements," Ashe says.

Insurers may use any of the following to verify the information in your life insurance application:

  • Paramedical exams.
  • Data from MIB Group, which include records of previous life, health, disability income, long-term-care or critical-illness insurance applications you've filled out.
  • Motor vehicle reports.
  • Doctors' records.
  • Pharmaceutical database searches.
  • Credit reports.
  • Autopsy reports. The report is used to determine cause of death if the insurer suspects fraud on the original application.

This article was reported by Amy Danise for Insure.com.

Published Dec. 11, 2009

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