White Lies and Insurance Fraud

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Almost everyone on the planet is guilty of telling a white lie at some point in their lives, and for some people, even daily. Whether the lie works to cover up the truth about a surprise for someone or serves as a means to spare someone’s feelings, most people feel that this deceptive practice has its appropriate time and place and is generally harmless.

But what happens when the white lie isn’t told to a person, but is told to an insurance company? You know, a simple white lie—like writing your weight from 1992 on your application for life insurance instead of the post-college, post-children, post-office job truth; or how about telling your auto insurance company that you only drive 10 miles a day when the truth lies somewhere closer to 25? How big a deal is that, really?

When it comes to insurance, white lies are a much bigger deal than they are when hiding the date of a surprise party from your parents or telling your best friend that you like her new, accidentally purple dye job. White lies on insurance applications or claims forms are actually tantamount to insurance fraud, which is a very serious crime.

Big Lies and Small Lies All Round Out to Fraud

Insurance companies are relying on you to tell them the total truth on your application. Only through full disclosure can they properly evaluate the risk that you present to them and only then can they choose the right premium to represent that risk.

When you present a dishonest representation of your health, your finances, your home, your car, your driving habits or any other aspect of your life to an insurer, you are cheating them out of the ability to determine the amount of risk they will be taking on with you as a client. At the end of the day, these omissions or inaccuracies could make the insurance company lose money. And just as you wouldn’t purposely pay for merchandise with a check that you knew had no real money behind it, you probably wouldn’t want to steal from an insurance company.

Insurance Fraud—Not a Victimless Crime

You might think that you aren’t really hurting anyone when you tell a small white lie to an insurance company, but in truth, you are impacting the insurance company’s ability to pay the claims of other policyholders when you lie about the type of risk you present. You see, insurance companies use the information you supply to determine the likelihood that they will need to pay for claims on your policy and about how much those claims will cost them. Based on this information, they set aside a certain amount of money into a separate fund, called a policy reserve, and this helps them make sure they have the money on hand to pay your claims and the claims of all other policyholders. They do the same with all of their other insureds. They then invest this money conservatively so that it can grow and rely on it to help them meet their obligations.

If you present more of a risk than the insurance company expects, you could have more claims than the company anticipates and more than they developed their reserves to handle. This means that your excessive claims could take more from the company’s reserves than they are prepared to pay. Then, as their claims experience goes up, it could result in an increase of rates for all policyholders—which is hardly fair to those policyholders that practice full and honest disclosure.

In The End, You Lose

Many consumers assume that the insurance company will never even realize that they told any kind of lie on their application. But claims are investigated before paid out and in many cases, these investigations could reveal evidence of material misrepresentation. Since material misrepresentation is considered a willful and purposeful fraudulent activity, you could lose out on your claim and instead end up with a cancelled policy and a return of your premiums paid.

Don’t take chances with the financial future of you and your family. Make sure that you are completely honest with your insurer from the moment you establish the relationship; there is no subject too small, and no question so insignificant that you can “fudge” the facts a little without hurting someone—quite possibly, you.

 

For advice on insurance call AmeriAgency at 615-209-9362.

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