What Happens If You Hide Facts In Your Life Insurance?

2020-11-18

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Buying life insurance is one of the most important promises you make for your family’s future. But did you know that this promise stands on the simple rule of total honesty? If you hide facts or provide false information, you’re not just risking rejection today but also leaving your loved ones unprotected when they need it most.

Key Takeaways

Always provide complete and honest information when applying for life insurance.
Hiding facts in your application can lead to rejection of your proposal at the start.
Even if a policy is issued, false information can cause the insurer to cancel it later and forfeit your premium.
Concealing facts can get you blacklisted and make it harder to buy life insurance in the future.
Sharing the right details from the start ensures your family can easily claim the benefits when they need them most.

The Role of Utmost Good Faith in Life Insurance

Insurance is a legal contract and is based on certain principles. One of the most unique and significant principles of the insurance contract is the principle of utmost good faith. This principle is the stark opposite of the normal market principle of ‘buyer beware’, which states that the buyer has to conduct due diligence on the asset and service they is agreeing to buy.

Insurance policies work differently from a simple sale-purchase transaction. The party thet needs the insurance cover proposes to avail the insurer’s services for a premium. The insurer after receiving the proposal, has three choices:

Accept the proposal as is
Ask for a higher premium or Modify the proposal
Reject the proposal

The criteria for rejection are simply the amount of risk the insurer has to bear in accepting the proposal. If the chance of the loss is almost certain, the insurer may refuse to cover the loss.

However, the insurer may also reject the proposal in other circumstances, including misrepresentation or breach of trust.

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Consequences of Hiding Facts in Life Insurance

Even a small lie on your insurance form can have big consequences. Here are the possible risks you face if you hide facts or mislead your insurer.

Rejection of Application

Every insurance proposal requires a lot of relevant information about the subject of insurance. For example, if it’s a vehicle you want to insure, you need to reveal information like purchase date, make and model, etc. which will help the insurer ascertain the value at risk of the proposal and decide.

The same thing happens with life insurance plans. You need to provide all the relevant information, including your employment type, hobbies and family health history. Then there are also medical tests to ascertain the status of your health and find any pre-existing medical condition.

If you happen to provide incorrect information on your application form and the underwriters find the information relevant to offer the cover, they will ask you to revise your input. If you don’t provide the correct information the proposal is rejected and there will be no life cover.

Rejections are rare in life insurance. However, you need to ensure that every information you provide on the proposal form is relevant. Even in the case of pre-existing illness, the insurer may accept the proposal with few conditions and a revised premium.

But, denying information or providing wrong information can have other consequences.

Termination of Policy & Forfeiture of Premium

If an insurer accepts your proposal with wrong or omitted information, the contract will become null and void once the error is recognised. Life insurers in India usually have two years to recognise and report such errors.

Once the error is recognised and the information alters the risk category of the proposal the policy could be termed void and the premium forfeited.

Possible Black-Listing

Blacklisting refers to the scenario where an insurer may put your details on the avoidable risk list. This is usually the case with repeat offenders or People who try to secure a life insurance policy from multiple insurers at the same time.

The total cover of these policies often exceeds the income limit imposed by insurers. Blacklisted individuals may find it increasingly difficult to secure a life insurance as more insurers adopt the digital technologies.

Rejection of Claim

The ultimate failure of a life insurance plan is when the death claim is rejected due to misinformation on the proposal form. This is more common than you might think, as most insurers only conduct underwriting at two points for a policy’s timeline – once at the proposal stage and again at the time of claim.

How to Make Sure Your Life Insurance Disclosure is Complete

Sharing full and honest details doesn’t have to feel complicated. Here are some simple steps to make sure you don’t miss anything important.

Check your medical history: Gather all reports, prescriptions and test results so you can disclose any past or ongoing illnesses correctly.
Be honest about lifestyle habits: Mention habits like smoking, alcohol intake or adventure sports, even if they feel minor.
Review family health details: Include any major hereditary illnesses in your family if the form asks for it.
Ask questions if unsure: If you don’t understand a question, speak with an insurance advisor instead of guessing.
Keep copies for your records: Save a copy of your filled proposal form and supporting documents for future reference.

Provide Only Correct Information in Proposal Form

Many of the questions on the proposal form may sound irrelevant. However, you should avoid providing incorrect information in your answers, as it may lead to an increase in the premium or, worse rejection of the proposal.

Conclusion

Honesty is the simplest way to protect the promise you make with your life insurance. When you fill out your proposal form truthfully, you don’t just get a policy; you secure your family’s future without any unpleasant surprises.

If you ever feel unsure about any question on the form, talk to your insurer or advisor instead of guessing. A trusted insurance provider like Canara HSBC Life Insurance offers clear guidance and dedicated support so you know exactly what to disclose and how.

Remember, hiding facts might look like an easy shortcut today but it can cost your loved ones dearly tomorrow. So share every detail honestly and keep your life cover strong, because at the end of the day, your life insurance is only as strong as the truth behind it.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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