If you are untruthful or omit material information on your life insurance application, you are at risk of reducing the benefit of your policy to the cost of the paper it was printed on. If you omit or alter health-related or lifestyle-related information (dangerous hobbies, speeding tickets, etc.) on your application, you run the risk of nullifying your policy.
As an example, let’s say you quit smoking two years ago, but you decide to stretch the truth a bit and state on your application that you quit five years ago (in order to pay a lower premium). If the insurance company finds out prior to issuing your policy, they can decline to offer you a policy. Not only would you not have a policy, but the declination would be a permanent part of your history on MIB (Medical Insurance Board. (For more information on the MIB, visit www.mib.com).
This could definitely affect any future purchase of life or health insurance.
The worst case scenario would occur if the insurance company did issue a policy based on this erroneous information and you passed away during the first two years of the policy. Most policies contain a non-contestability clause which gives the insurance company a specific time period (typically two years) in which to contest information on the application.
If any information is found to be fraudulent, the insurance company has the right to cancel the policy. If, in this situation, a claim had been filed within that time period, the insurance company could easily contest paying that claim if it found any of the information to be fraudulent.
We always recommend to our clients to be forthcoming with the information they enter on the application.
If certain information results in a higher premium, that’s certainly better than paying a lesser premium and having the protection you purchased for your family be worthless when needed.