3 Ways You Can Screw Up Your Life Insurance Policy

Think that you're covered for life? Better think again! Here's 3 ways that you could screw yourself out of your life insurance policy.

Let us start with a tiny little trivia about lying. "How often do people lie?" - The answer might not surprise you all too much. According to researchers, most people can't get past a 10 minute conversation without lying at least once. But what does honesty (or the lack thereof) have to do with getting an insurance policy? More than you think, actually. Read on.

As you fill out that life insurance application, if you purposely leave out important information about your past or present health it may have detrimental effects to your insurance policy coverage. Although some insurance policies have a cut-off date for how far back you are required to disclose health issues; if you aren't sure, it's best not to jeapordise a policy by witholding information you believe too old to be relevant. To put it simply, do not lie during your insurance application. Any material fact, which is a fact that would influence the judgment of a underwriter and affect any of your insured risks should be disclosed, fully and faithfully, as stated in the Insurance Act 1996 under Section 149(4)

How Are My Risks Determined?

Your risk class will be determined by an underwriter from the insurance company of your choice. He or she will decide whether or not to accept a certain risk. By providing your insurer with a completed application form, and also a full medical report, the insurance company will then be able to make a decision. With that said, it is important that you disclose all relevant information regarding your health and lifestyle so that your risks can be accurately assessed.

So the question that dawns on us is - " What happens when you do not disclose correct background information? ". Non-disclosure of information is one of the main reasons why insurance companies legitimately refuse to pay insurance claims on your policy. Below are situations where your insurance contract will become void or insurance claim payment delayed due to undisclosed information.

1. Misrepresentation

Misrepresentation often occurs due to carelessness or negligence during the recording of information. It can only be committed by the insurance company, participant or insurance agent. 

Let us say that you had accidentally misstated or omitted something when applying for a policy, such as having undergone a major operation when you were younger. Now it appears that the operation has caused some health complications and you wish to be reimbursed for any medical expenses that follows. Your insurer might not approve your claims, on grounds of misrepresentation. But hold on, there is such a thing as the "Contestibility Period".

The Contestibility Period

The Contestability Period is the time period, usually 2 years, during which the insurer is not obligated to pay a claim, because of misrepresentations of material facts given to your underwriter when determining your risks. Once these 2 years have gone and passed - your policy will then enter the Incontestibility Period, where claims can be given, even though there has been some misrepresentations of material facts.

If you pass away from a condition that you have failed to mention in your application within the Contestability Period, any claims made can be ignored and your premiums refunded. However, if you die after 2 years, the policy will pay out even if it is found that you have left out some very important information in your application.

2. Fraud

Fraud is an act committed by either the insurance operator, participant or agent and the disclosure of information together with the intent to intentionally deceive. If a policy is made fraudulently, the policy will be deemed invalid. Below are just a few examples of fraud:

  • Claim for accidents or injuries that has never happened.
  • Faking a death
  • Staged burglary, theft or vandalism
  • Arson. - a dirty tactic typically used by failing businesses!
  • Staged vehicle theft
  • Staged home break-in

Remember: fraud isn't just a petty offense - it carries criminal liability.

3. Concealment of Material Facts

Material facts are facts that directly pertain to or affect the claim and a non-material fact is of course the opposite: information that isn't important to the claim nor will affect any outcomes. 

A willful act of withholding information that may be related to the risk of the insured or the insurance policy even if the insured is not being asked about the subject. The insured is not allowed to conceal or hide any information from the insurer -  concealment can also lead to cancellation of the contract.

For example, perhaps you didn't want to tell anyone, including your insurance company that you have contracted cancer. A few months down the road, your condition worsens, you're diagnosed with stage 4 thyroid cancer and in need of chemotherapy. Is your insurance company going to foot the bill? Forget about it!

At the End of the Day

As stated in section 150 of the Insurance Act, you are required to disclose facts about the risk being proposed which you know to be relevant to the decision of your insurer. Otherwise, the policy issued to you may not be valid. Policyholders should be aware that the false claims made to obtain money from the insurance company is a crime which will result in the claim not being valid. However, if the misrepresentation is on a non-material fact; the contract would not be voided.

photos courtesy of freedigitalphotos.net


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