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What Happens When You Lie on an Insurance Application





Honesty is the best policy. Cheaters never prosper. It’s a sin to tell a lie. You’ve heard all the clichés but sometimes it takes knowing how easily you can be found out and the consequences of fibbing to hammer home the point. So, tempting as it might be to fudge the truth on an insurance application, here’s why it’s a really, really bad idea.

Insurance companies are not stupid. In fact, they’re probably a lot smarter than you are, if for no other reason than they’ve seen it all and heard it all. They know it’s human nature to play a little fast and
loose with the facts if it might mean saving a couple bucks on an insurance policy. They have an arsenal of tools to ferret out fibs, including very sophisticated software, shared databases and human scam-sniffers.

Thinking about burning down your house to get out of that underwater mortgage with a nice fat homeowner’s insurance policy pay-off? Some of the clues supplied by the National Fire Protection Association to spot an arson include: fires started during a renovation; an unusual amount of combustible material onsite; the homeowner’s whereabouts can’t be accounted for; valuable personal items or pets were removed from the home before the fire; and firefighters’ access to the building was blocked by vehicles or items pushed up against doors. Other sources cite a claimant’s high debt or financial problems, adding excessive coverage just before a fire occurs and a history of such claims as additional indicators of foul play.

Want to fake the theft of non-existent personal property? Handwritten receipts are a tip-off, as are the lack of a police report and the loss of “family heirlooms” whose worth is impossible to accurately assess.

People often misrepresent facts on auto insurance applications to get discounts or lower premiums. Common untruths include lying about the number of miles driven per year, marital status, age, who drives the car, where and why it’s driven and claiming to be a member of an organization. Any of these can easily be discovered when you file a claim.

Lying on health and life insurance applications is fairly common, too. The fibs include saying you don’t smoke, use drugs or have a preexisting condition. But insurers can easily check any number of sources to find out the truth. Some of the resources they can use include your medical records, motor vehicle reports and credit reports, as well as pharmaceutical databases and the MIB (a database of application and claims records shared by most major insurers). They can also order a medical exam that will show if you’re a substance abuser.

If you are caught lying on an application or insurance claim you face a variety of consequences. Your application or claim can be denied. You could be charged a higher premium. Your policy could be canceled. You might even be prosecuted for insurance fraud. Bottom line: honesty really is the best policy.

 

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