What Happens If You Lie When You Buy Insurance
Why Lying or Omitting Facts Can Cost You Money
Insurance companies ask a lot of questions when you apply for insurance. Sometimes the questions seem too personal, or even annoying and make us wonder why we even have to answer them. Other times, the questions insurance companies ask let us get more discounts or price reductions and we answer without a problem knowing it will help us save money on our rate. We know that how we answer the questions makes up the information that determines the price we pay for our insurance, so it makes sense that when people are answering insurance questions, they want to be in the best position to get as many discounts as possible.
What happens when the answers to those questions make us believe that we may pay more?
Is It Okay to Lie to Insurance to Get a Better Rate?
Does it make a difference if you exaggerate just a little, withhold information, or just flat out lie? It's difficult to understand the consequences of lying to insurance unless you've been caught in a lie, by then it's too late. Here's the low down on:
- The different reasons people lie to insurance
- Little white lies and misrepresentations people make to insurance companies
- What the consequences are
- Legal ways you can save money on insurance without lying
Should People Lie to Insurance to Save Money on Insurance Policy Costs?
Stats show that people are lying when applying for insurance. For example, a survey of 3,000 consumers by CoverHound showed that 51 percent of auto insurance applicants did not provide accurate information to insurance companies. Although the reasons a person may not provide accurate information may vary from making an honest mistake, to a flat out misrepresentation or lie, the consequences of lying on an insurance application, or lying to an insurance company during a claim can be serious.
5 Common Home Insurance Lies and Insurance Misrepresentations
- Whether you have a fireplace or wood stove: Because of the increased risk of fire, there may be additional costs when a person has auxiliary heating like a wood burning stove on an insurance policy. People sometimes "forget" to tell their insurance about this, but more often than not an insurance agent or representative will ask the question. If you lie about this, it will be a problem in a claim.
- If you have a dangerous dog or dog breed: Lying about whether you have a dog or not because you are afraid you won't get insured is going to be a problem for you if you have a claim. If the information is withheld from an insurance company, or if a false declaration is made, the insurance contract may be canceled or considered null and void.
- If you have a pool or a trampoline: Pools and trampolines are an issue for some home insurers. It is best to declare this information because you may even need some extra coverage that would have to be added to the policy to protect you. Swimming pools are expensive, wouldn't you want to be insured if something happened? Pools and trampolines increase liability risks. Some insurers have rules around them. If you get a policy with an insurer who would not have agreed to insure you if they knew you had a trampoline, then you will have a problem with a claim, even if the claim has nothing to do with the trampoline, you may lose your insurance coverage. Its better to start a policy with a company who is willing to insure you in the first place.
- Doing renovations or not doing repairs: Any time you do renovations in your home you need to declare it to your insurer to make sure that your home insurance is still going to cover you properly. Very often the insurance company will just ask you some basic questions about the work and take note of it. If it is basic renovations, it is usually not a problem. Not declaring renovations will be a huge problem if you have a claim and they find out the home was under renovation. The insurance may not pay. If your insurance company asks you questions about dates of renovation or requests that you do repairs, be honest with your answers.
- Use of the home: Home vacancy, renting to others, not living in your house for extended periods of time, business use, home sharing like Airbnb, or any situation where your home is not being used as a private residence for you and your family creates an issue with a home insurance policy. A home insurance policy is designed to insure your primary residence being used for your own personal use. Any deviation from that may break your insurance contract terms and conditions. There are endorsements, vacancy permits, and other coverages that can be added to a policy to make sure that you stay insured in these circumstances. It may not seem like a big deal to go out of town for a few months and not tell your insurance company, but there are questions they will need to ask before you go away, and there are even clauses in insurance policies that could make certain kinds of damage, like water damage claims not covered if you don't take certain precautions.
An insurance representative is there to help you figure out solutions. The best thing is to be honest and discuss your situation. Sometimes a different kind of policy will have to be issued, however telling the truth about the use and occupation of your home will make sure your insurance covers you in a claim.
5 Common Car Insurance Lies People Tell
There are many factors involved in the pricing of a car insurance policy and declaring all the information honestly is important to get the right insurance and price.
- Not revealing pre-existing damage on vehicles, failing to report modified cars or upgraded equipment.
- Lies about drivers of the car: For example, who the drivers are in the household, who really drives the car as the primary driver, putting a car under one person's name, when it's really someone else who drives it. These kinds of tactics are extremely problematic for insurance, the truthful situations must be declared or a claim may not be paid under some circumstances because the insurer may say they wouldn't have accepted the risk or written the contract had they known. You're the only one who will lose out in that situation, after all don't you buy insurance to be covered in a claim?
- Use of the vehicle, not revealing the true distance to work, hiding business use (like delivery) or where the car is really kept at night (parked or garaging address). All these factors affect the rate of insurance and the information must be kept accurate in order for your insurance contract to pay out properly in a claim.
- If they have been uninsured for a while, had a lapse of insurance, or had a policy cancelled for non-payment or other reasons.
- Not telling the truth about previous tickets, penalty points on a drivers license, DUI or accidents. People often do this hoping to avoid insurance surcharges, but this kind of information will usually surface. Insurers check information in C.L.U.E. You are better off being honest and trying and negotiate the best rate up front.
Why Do People Lie to Insurance?
Although people may lie about any number of things for their own reasons, inevitably the reasons usually lead to some sort of financial gain. Here are three common reasons a person might lie or not tell insurance about something and why you don't want to do this:
- Trying to save money on insurance premiums: If you are so tight that saving a few dollars on your insurance is worth lying about, imagine the financial distress you will be in if you think you have insurance at a great price (because you lied), and then you have a claim and your claim is not fully paid or denied totally. You will be in a much worse situation, and you may even end up charged with a felony or misdemeanor.
- Trying to get more money in a claim settlement: Many people pad insurance claims and try and get more money when they are making a claim instead of reporting based on the actual loss. this kind of behavior is dangerous because it puts you at risk of insurance fraud. When you have a legitimate claim, just be honest and report the information to the best of your ability and you will get your due payment. Trying to inflate your claim, or claim for things falsely could put you at risk of an investigation and ultimately make you uninsurable in the future, have your entire claim questioned, put you through huge hassles and possibly give you a criminal record and land you in jail. It just isn't worth it. Take what you are owed, be honest with declarations and avoid what could be a very bad situation that will impact the rest of your life.
- Trying to get insurance when they may not be eligible or are afraid to be refused: There are high-risk markets that can insure people even when they think they will not get insurance. There are ways to declare all the truths to an insurance company and negotiate with them to find a way to get insurance. If you are having a hard time finding insurance, you can contact the state insurance commissioners office and ask what solutions they can recommend.
The consequence of lying to get insurance can make your insurance null and void in a claim. If you weren't willing to go without insurance, and you were willing to lie to get it, does it make any sense that after all that your insurance isn't even valid?
Why You Shouldn't Lie to Insurance. What Could the Consequence Be?
Besides putting you at risk of being denied your claim, not getting paid properly, or having your insurance rates increase after the insurance company finds out about the things you did not declare, you could end up being uninsurable or uninsured.
An insurance company could review your claim and the new information and decide to retroactively charge you the proper premium that they would have charged in the first place before they pay out a claim. Although this is better than having a claim denied, you still end up paying. After the claim, if the insurance company feels you have been dishonest or are a moral risk, you could have your insurance policy canceled. Once a policy has been canceled by an insurer, you usually have to declare this to future insurers and having this on your record will cost you more.
Another problem that affects everyone is that when people lie to insurance and the insurance company does not collect the proper premiums for the risk, the rate of insurance goes up for everyone. Underwriters come up with premiums based on risk, so when information is not accurate, then the insurance companies have to pass on the costs of claims paid to the consumer.
How to Get Better Prices on Insurance Without Lying
- You may be surprised how helpful an insurance representative will be if you just tell them your situation honestly. If you don't like the type of service you get, or if you feel someone is unhelpful, you should change insurance representative to find someone who you feel is really interested in helping you. Sometimes you might even decide to cancel your insurance if you find a better price elsewhere. If you have a situation that requires special coverage, shopping around for the best price may be the best bet.
- Consider taking higher deductibles to reduce your cost.
- Combine all your insurance policies with one insurer. You may be able to negotiate with your insurance company more if you offer them more than one policy or car. You will have more negotiating power and get multi-policy or multi-vehicle, as well as possible loyalty discounts.