What Happens If You Hide Facts In Your Life Insurance?

Written by : Knowledge Centre Team

2020-11-18

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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 the due diligence into the asset and service he/she is agreeing to buy.

Insurance policies work a little differently than simply as a sale-purchase transaction. The party which 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 breach of trust.

Rejection of Application

Every insurance proposal needs 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 wrong 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 the information or providing wrong information can have other consequences.

Termination of Policy & Forfeiture of Premium

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

Once the error is recognised and the information seems to alter 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 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 the insurers. Blacklisted individuals may find it increasingly difficult to secure a life insurance cover 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 a more frequent occurrence, as most insurers only conduct underwriting at two points for a policy’s timeline – one at the proposal stage and two at the time of the claim.

Provide Only Correct Information in Proposal Form

Many of the questions on the proposal form may sound irrelevant. However, you should avoid putting wrong information for any query, as it may lead to an increase in the premium or worse rejection of the proposal.

Insurance is a contract of good faith. Thus, consider the insurer your friend in need, as life insurance will protect your family financially in your absence.

Also Read about - Principles of Insurance

What Documents are Required to Buy a Life Insurance Plan in India?

Insurance Claim - Meaning, Procedure & How to Avoid Rejection?

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