Lying On A Life Insurance Application – What Happens?

White lies solve so many problems in life. As kids, we figure out that rather than admitting to that thing you did wrong, you can sometimes get out of trouble if you lie about it. It doesn’t work every time, but getting out of trouble 30% of the time is still better than getting in trouble every time by owning up.
People take this skill everywhere in life. Although most people are honest most of the time. Others lie regularly for whatever reasons suit them. This results in many people lying on a life insurance application.
To combat this, insurance companies double check virtually everything you put on your application. There are also consequences for getting caught.

The Most Common Reasons for Lying On A Life Insurance Application

Ever wonder why you have to take a medical exam or do a health interview? All the questions are already on the application after all. Most people do not remember the lies they put on their applications a couple weeks after the fact. Which results in discrepancies that in turn raise red flags for an underwriter.
what happens when you lie on an insurance application
These six reasons are the most common lies underwriters catch.

Lying About Income

The purpose of life insurance is to replace the income you provide for your family when you die. Which means that you need to show income to prove it makes sense for the life insurance company to insure you for large amounts.
If someone makes $30,000 a year, they will have a more difficult time qualifying for an enormous death benefit. Someone who earns $100,000 a year will have an easier time. If Jim is only projected to make 2.1 million in his lifetime, it does not make any sense to insure him for 5 million
It’s natural to want the best/most for your family. So many people will exaggerate their incomes to qualify for larger benefits.

Lying About Medical and Family History

lie on life insurance application

Sometimes there is no way to know your family medical history. That’s okay. Talk to your agent about what you know.

This is a tricky one. Particularly if your parents are no longer living when you apply for life insurance.

Life insurance companies will consider you a higher risk if your parents died of non-accident causes before 60. You also present a higher risk if either of your parents had cancer or heart disease. They will adjust your rates accordingly.
If you don’t know these things about your parents, don’t worry too much. It’s easier to explain yourself if you just didn’t know or had no way of knowing.
When people lie about their own medical history, it’s much more serious. Even with the 2 year contestability clause, life insurance companies can still make cases to deny claims. If the life insurance company can prove an “attempt to defraud” then your beneficiaries might not see a single penny.
During the life insurance application process, the company will ask for a list of doctors you have seen. They will often ask permission to request your medical records as well.
What many people don’t know is that there is a prescription database. Insurance companies have access to this. They will have a list of every medicine a doctor has prescribed for you.
There is also the Medical Information Bureau. This is an association for insurance companies. The MIB keeps encrypted codes on every person who has applied for health/life/disability insurance for 7 years. The companies who are part of this association can request the codes given by other companies.
For example, if a company rejected your life insurance application a year ago, the new company will know. The codes may not state the specific reason. Yet that still presents a problem if your current application says you are in perfect health and of upstanding character.

Lying About Smoking

With smoker rates drastically higher than non-smoker rates, it’s almost natural for people to lie on a life insurance application. Except it’s easily caught in the medical exam. Also your doctor’s records will have you down as a smoker or not.

Lying about Drug Use

Drugs can be varying degrees of illegal. So admitting use on your life insurance application is incriminating, right? That part is actually protected by HIPAA. Anything you put on a life insurance application is subject to strict privacy law.
On the other had, consumption of many drugs make you a moral hazard to the insurance company. Life insurance companies can reject you for “moral hazards.”
The major exception to this rule is cannabis. There about a dozen marijuana friendly life insurance companies. With these companies, we strongly recommend you put smoking on the application. Then when you go to do the medical exam you will get the best rates if you can show less THC in your urine sample than you say you smoke.
Thankfully the industry is changing and realizing that in spite of the federal government’s stance on marijuana, it’s less awful for you than tobacco. Which is why some companies offer non-smoker rates to people who only smoke weed.
Other drugs are less accepted and will almost always result in a decline.

Lying About Driving Records

Life insurance companies check your driving record. Underwriters will offer you a policy at higher rates if you have a handful of speeding tickets than if you have a clean record.
DUIs are the big problem with driving records. These raise enormous concerns for the life insurance companies. They look for people who are going to be as responsible as possible. A few speeding tickets is nothing compared to recent or multiple DUIs. Be safe. Get an Uber/Lyft or have a DD. The cost of the ride home will be significantly less than your life insurance rates.

Lying About Depression

lying about depression life insurance

Talk to your life insurance agent if you temporarily took anti-depressants to make a case for not raising rates.

All life insurance contracts have a clause for reasons they will not pay out. It usually includes suicide, acts of war, and dying while trying to commit a felony.

Past bouts of depression can affect your life insurance rates. Particularly long term depression.
Because of the prescription check, any medications you’ve taken will show up.
The good news is that sometimes the underwriters are understanding of temporary despondency. We have seen underwriters sometimes ignore depression altogether for reasonable explanations.
For example, one lady took anti-depressants for a few months after her parents died. The underwriter decided that was within the realm of normal and let it go.
If you have taken anti-depressants, make sure to have an explanation ready and that could help with your rates. Not always. Talk to your life insurance agent about if a written explanation can help your case.

The Two Types of Lies On A Life Insurance Application

In the eyes of the law, there are two main types of lies concerning insurance. Lies of omission and attempts to defraud.
Both types hurt your chances of getting the best rates. But the latter is significantly more serious. Let’s look at omissions first.

Lies of Omission

This type can either be intentional or unintentional. Think of it as an unintentional lie. You just forgot something that happened many years ago. It happens. Not a huge deal.
Intentional lies of omission can still result in a declined application. For example, Bob may have neglected to note that he smokes cannabis once a week or so. Then Bob takes the life insurance drug test and a little THC shows up in his system. Depending on the company Bob applied with, the life insurance company may reject his application or revise the offer to include smoker rates.

Attempts to Defraud

These can also be omissions, but with fraudulent intent behind it. An example may be someone who knows they’re terminally ill and looking to get their family a quick buck. They might say they are perfectly healthy on the application. If this somehow gets passed an underwriter and the policy is issued, the life insurance company may claim attempt to defraud and fight the payment of the beneficiaries.
Then of course there are sensationalist stories we occasionally see on the news about people trying to fake their own deaths for the insurance money.

What Happens When A Lie Is Caught In Underwriting

When an underwriter sees a discrepancy, she/he will sometimes request a redo of that section of the application. It’s a polite way of saying, “I’m not sure you filled this out right, please do it again.” Your agent will know they are on to something even if that something is not yet specified.

Other times if the discrepancy is more serious, the underwriter will reject or postpone the application entirely.

The Two Year Contestability Clause

The law protects you, as the purchaser, with a two year contestability clause. Every life insurance contract has this.

life insurance fraud

Life insurance fraud raises rates for everyone. That’s why the company has a two year contestability clause.

It states that the life insurance company may legally contest anything they believe is false within the first two years.

This means as long as you own the contract for more than two years, anything the life insurance company did not catch in underwriting is on them.
Of course there are exceptions. An attempt to defraud the company is not necessarily covered by this clause.
Let’s say Sally has severe MS. She applies for life insurance without disclosing it. Somehow she makes it through underwriting without the life insurance company finding out.
Five years later, Sally passes on. Her family submits the claim. During the claims process the MS comes up. Oftentimes the life insurance company will reference the original application and file suit for fraud.
This can mean a couple problems for the family. First, they don’t have the cash when they need it for the burial. Secondly, they have to deal with a lawsuit against the estate while they’re grieving. These lawsuits are often too expensive for the families to contest. Even if the might win, without funds for the legal expenses, there is not much most people can do.

Lies Caught At Time of Claim

If the life insurance company cannot prove an intent to defraud, they will have to pay the claim outside of the contestability period
If someone simply had a memory lapse while filling out the application (it happens honestly) then their beneficiaries will more than likely receive the death benefits. People are not hard drives. They cannot remember everything all the time. It’s unreasonable to expect that.
If the lie is caught within the contestability period, then there will probably be a problem. Also with any attempts to defraud like in the example above.

The Only Time Over-disclosure Might Be Smart

Sometimes a little paranoia is healthy. Like when you’re driving 5 miles over the speed limit and you see a cop a few streets up. They probably won’t pull you over for going 30 in a 25, but you just never know.
lying about hobbies on life insurance application

If skydiving is on your bucket list, don’t worry about it for life insurance purposes. They underwriters can only make decisions about what you do at the time of application. They cannot underwrite the future.

Sometimes a little paranoia on insurance applications can be healthy too.

For a personal example, I have my SCUBA certification. (It’s an incredible experience and I highly recommend trying it.) At the time of my insurance application I hadn’t been diving in 5 years. I told the underwriter that I intended to continue diving, but just hadn’t made time. Since it had been so long since my last dive I didn’t get any hit to my rates.
Now I am covered for scuba diving should I get back into it. No exclusions. No extra premiums.

What if I take up a new hobby or job after my policy is in place?

Don’t worry about it. You are covered. The underwriting for the policy only takes into account what is going on with you at the time of underwriting.
If you start smoking after your life insurance policy, you’re fine. (Unless you need to go renew a term contract. Then you’ll start paying smoker rates.)

How Marcan Insurance Can Help

Since whatever you tell your life insurance agent is 100% confidential, it is smart to ask advice. Should you disclose something they don’t ask about on the application? Probably not, but asking your agent will give you the pros and cons for both options.
At Marcan Insurance, we specialize in helping folks to who smoke marijuana get great rates on their life insurance. Non-smoker rates if possible. Because so many people get caught lying on a life insurance application about their drug use, we want to help everyone find a good solution without risking the life insurance company contesting the claim.
If you have any questions, please give us a call at (888) 987-8447. There is never any pressure to buy. Like we said, every call is completely confidential.