Why You Should Never Lie on a Life Insurance Application


People are sometimes tempted to lie on life insurance applications as a way of either a) increasing the likelihood of the policy being approved, or b) getting a lower premium. Most application lies fall under the category of “the sin of omission” – failing to disclose information that may lead to a negative outcome.

We’ve touched on this topic a bit in other articles, but we decided that the topic of lying on a life insurance application is sufficiently common to be worthy of a more comprehensive discussion.

Common lies people disclose on life insurance applications

Specifically, what are people likely to lie about on a life insurance application?

According to Insure.com, the seven most common lies on a life insurance policy application include:

  1. Tobacco use
  2. Prior/current drug use
  3. Depression
  4. Multiple DUI’s (Driving Under the Influence)
  5. The number of Moving Violations they have
  6. Cancer history, both the applicant and with family history
  7. Travel to dangerous locations
  8. Income – overstating it to be eligible for higher insurance coverage

Each of these categories indicate a current or previous habit, condition, occurrence or series of occurrences, that could potentially lead to higher premiums or even to a decline of the insurance application. By not disclosing the information, the applicant believes that he or she will be able to get the desired insurance coverage at the most favorable rate.

The problem with that thinking is that there are too many information sources available to the insurance companies that could lead to the very unfavorable outcome that the untruthful applicant hopes to avoid.

MIB reports and other third party verification sources

A life insurance company is not without resources in the event that they suspect an applicant is being less than truthful. At a minimum, they have access to the MIB reports that will shed considerable light on the true state of your health.

MIB – originally known as “Medical Information Bureau” – is a database that insurance companies use to verify your health history. Much like a credit report, it is a database that keeps track of major medical events. Thousands of health practitioners and organizations provide information for MIB’s so it’s very likely that missing information will turn up that wasn’t disclosed on the life insurance application.

If the company has any doubt about the state of your health, they can also order a medical exam during the application process. The company will send a third party to your home or place of work who will check your height and weight, your blood pressure, and take blood and urine samples, among other tests. They can also take hair samples to assess a history of drug use.

Insurance companies commonly pull motor vehicle reports to determine your driving history and any incidences of DUI. And if they suspect less than truthful financial disclosure, they can order a credit report and require you to submit financial information to prove income and assets.

The consequences of lying on a life insurance application

It is possible to convince ourselves that this comes under the imaginary “whoops”, or “everybody does it” provisions, but there are real consequences to lying a life insurance application.

The insurance company will uncover the truth and charge higher premiums. Despite the attempt to hide relevant information, an insurance company is likely discover the missing information, and approve the policy with the higher premiums that you were trying to avoid.

The company may investigate closer and decline your application. At the extreme, the company may decline the application entirely. This outcome becomes more likely if the application contains multiple lies or missing disclosures.

The insurance company may discover the lie upon your death and reduce or cancel your death benefit. This is the worst of all possible outcomes. The company could discover the lie after your death – perhaps through an autopsy report – and either reduce or completely eliminate your death benefit. There is a two-year period of contestability between the time of your insurance application and your death, within which the insurance company can contest the payment of benefits. In addition, if the application contains outright fraud – your death was caused by conditions known to exist at the time of your application – they may be able to avoid paying benefits even after two years, depending upon laws in your state.

When filling out an application for life insurance, be as truthful as you can, fully understanding that the insurance company will seek third-party verification if there is any doubt at all about any disclosures. And many will conduct third-party investigations as a matter of course. Best advice: Assume that any material disclosures in your application will be investigated.

You can’t go wrong with that kind of thinking.