What is Misrepresentation?
In life insurance, misrepresentation refers to an insurance applicant’s intentional misleading of the life insurance provider, usually in an attempt to get lower premiums.
Misrepresentation in the life insurance application process
When you apply for life insurance, the insurer starts a process called underwriting. This is their opportunity to gather relevant details about you in order to assess your risk level and consequently price the premiums for the policy you want to purchase.
Most life insurance application processes require you to complete paperwork on which you’ll share key details about yourself, your health, and your lifestyle. Insurance providers want to know if you engage in high-risk activities, like specific occupations or smoking. If you do, they’ll charge you more for your life insurance policy. If you put down false information or fail to share important details, it can be classified as misrepresentation.
Omissions and the doctrine of utmost good faith
In an effort to evade higher premiums, some people misrepresent themselves on their life insurance. This can be a lie of commission (an outright untruth), but it can also be a lie of omission. If you have a family history of serious health conditions or you chew tobacco, for example, it will probably impact your life insurance policy. Failing to share that information will violate a specific part of insurance law called the doctrine of utmost good faith.
This doctrine binds both you and your insurance provider, stipulating that you both need to share information that the other party should know. For example, if there’s some fine print on your policy that would affect your coverage, the doctrine of utmost good faith obligates your insurance provider to call it to your attention.
Similarly, the doctrine requires you to share information that your life insurance provider should know during the underwriting process. If you fail to do so, the insurer can classify it as a misrepresentation. And if it’s significant enough, they can void your policy.
Material misrepresentation
Generally, misrepresentation will come into play if you pass away while what’s called a contestability clause is in effect. Most life insurance policies come with a contestability period of two years.
If you die within that window, your life insurance company can — and probably will — investigate the claim your beneficiaries make. If they discover that the information they have on file for you includes any material misrepresentation, they can void your coverage. At that point, your beneficiaries will be left with nothing, despite the fact that you paid your premiums throughout your lifetime.
Note that we say material misrepresentation. This is to distinguish between inaccuracies that don’t meaningfully impact your coverage and those that do. If you failed to disclose a family history of heart disease or a smoking habit, for example, that would generally be considered a material misrepresentation. If you just wrote down the wrong street address, that probably won’t be considered material, and consequently won’t affect your beneficiaries’ ability to make a claim against your policy and collect your death benefit.
State laws govern what constitutes material misrepresentation. In some states, the insurer will need to show that you had an intent to deceive them in order to void your policy for misrepresentation, for example.
Ultimately, though, if you want to be able to rest easy knowing that your beneficiaries won’t have any issue collecting their payout from your life insurance provider, you want to avoid the possibility of any misrepresentation issues. That means being truthful and forthcoming during the life insurance underwriting process.
