Insurance companies ask a lot of questions when you apply for insurance. Sometimes the questions seem too personal, or even annoying, and make you wonder why you have to answer them. Other times, you don't hesitate to answer because the questions can lead to discounts or price reductions.
Your answers determine the price you pay for your insurance, so it makes sense that you want to be in the best position to get as many discounts as possible. But what happens when the questions make you think you might pay more? Can you lie when vendors ask insurance questions?
Is It Okay to Lie to Insurance Companies to Get a Better Rate?
Does it make a difference if you exaggerate just a little, withhold information, or just flat out lie to an insurance company? It's difficult to understand the consequences of lying to insurance companies unless you've been caught in a lie. But, by then, it's too late.
Here are details on:
- The different reasons people lie to insurance companies
- Little white lies and misrepresentations people make to insurance companies
- What the consequences are
- Legal ways you can save money on insurance without lying
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 Misrepresentations
- Whether you have a fireplace or woodstove: Because of the increased risk of fire, additional costs can apply to an insurance policy when a person has auxiliary heating like a wood-burning stove. People sometimes "forget" to tell their insurance company, though insurance agents or representatives will ask the question. If you lie about this and have a fire or other damage caused by the woodstove, the insurance company may not pay your claim.
- If you have a dangerous dog or dog breed: Lying about whether you have a dog because you are afraid you won't get insured is going to be a problem for you if you have a claim. Withholding the information from an insurance company or making a false declaration could result in the insurance contract being canceled or considered null and void.
- If you have a pool or a trampoline: Pools and trampolines increase liability risks and can be an issue for some home insurers. It is best to declare this information because you may even need to add extra coverage to the policy to protect you in case of an accident or claim. If you lie, the insurance company could deny your claim even if it has nothing to do with the pool or trampoline. It's better to start a policy with a company that is willing to insure you in the first place.
- Doing renovations or not doing repairs: If your insurance company asks you questions about dates of renovation or requests that you do repairs, be honest with your answers. You should also contact your insurer any time you do renovations in your home to make sure your home insurance is enough to cover you properly. If it is basic renovations, it's not typically a problem. However, the insurance may not pay if you don't declare renovations and have a claim during the project.
- Use of the home: 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. Home vacancy, renting to others, 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 can create an issue with a home insurance policy. There are endorsements, vacancy permits, and other coverages that can be added to a policy to make sure you stay insured in these circumstances.
An insurance representative is there to help you figure out solutions, so 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
- Vehicle condition: Not revealing pre-existing damage on vehicles, failing to report modified cars, or upgraded equipment.
- Drivers of the car: You should never misrepresent who the drivers are in the household and who really drives the car as the primary driver. If the truthful situations aren't declared, a claim may not be paid because the insurer may say they wouldn't have accepted the risk or written the contract had they known.
- Use of the vehicle: Not revealing the true distance to work, hiding business use like delivery, or concealing whether the car is kept at your address or a separate parking garage at night can affect the rate of insurance. The information must be kept accurate in order for your policy contract to pay out properly in a claim.
- Lapse in coverage: The insurance company needs to know if you have been uninsured for a while, had a lapse of insurance, or had a policy canceled for non-payment or other reasons.
- Traffic violations: You might not tell the truth about previous tickets, penalty points on a driver's license, DUI, or accidents to avoid insurance surcharges. But this kind of information will usually surface. You are better off being honest and trying to negotiate the best rate up front.
Why Do People Lie to Insurance Companies?
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 to an insurance company:
- Trying to save money on insurance premiums: If money is so tight that saving a few dollars on your insurance is worth lying about, imagine the financial distress you will be in if your claim is denied. Not only can the insurance company refuse to pay a claim, but 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 in an effort to get more money when 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. Take what you are owed, be honest with declarations, and avoid what could be a very bad situation that could impact the rest of your life.
- Trying to get insurance when you may not be eligible: High-risk markets exist that can insure you even when you think you're uninsurable. If you are having a hard time finding insurance, 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 to buy insurance that might not be valid?
Consequences of Lying to Insurance Companies
Besides putting you at risk of being denied your claim, not getting paid properly, or having your insurance rates increase, you could end up being uninsurable or facing criminal charges.
Before a company pays out a claim, they could review the new information and decide to retroactively charge you the proper premium that they would have charged in the first place. Although this is better than having a claim denied, you still end up paying. After the claim, the company could decide you're too big of a risk and cancel your coverage. Once a policy has been canceled by an insurer, you usually have to declare this to future insurers. Having this on your record can cost you more for future insurance policies.
Another problem that affects more than just you is the rates could increase for everyone if the company does not collect the proper premiums for the risk. Underwriters come up with premiums based on risk and when information is not accurate, 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 tell them your situation. If you don't like the service you get, or if you feel someone is unhelpful, you should change insurance representatives to find one who is interested in helping you. 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. You could also consider taking higher deductibles to reduce your cost.
You may be able to negotiate with your insurance company if you combine all your insurance needs into one. You will have more negotiating power and could get multi-policy or multi-vehicle discounts, as well as loyalty discounts.