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Lying on a Life Insurance Application

Written by Aaron Pinkston, Mon, Nov 16 2009

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I hear this life insurance question from time to time: “What’s the worst that could happen if I lie on a life insurance application – can I get away with it?” You might be able to get away with it in rare circumstances. But the worst that can happen if you don’t tell the truth on a life insurance application is no life insurance – after you are already dead.

But how could that be?? How could those insurance carriers take my life insurance away from me after I’m already dead? Well, it is because you lied. Let me explain how it works and then I will explain the why.

Period of contestability

In all states and provinces, there is something called a “contestability period”. This is the period that a life insurance company can contest the validity of a policy they issued. In most cases, the contestability period is two years. If you have a reason to know exactly how long it is for you, check with your local state or province (but chances are this means you are up to something).

If you die during the contestability period, the death can be examined and so can the application, which becomes part of your insurance contract. If there is a material fact that is out of place your life insurance contract could be voided after your death. Instead of the life insurance proceeds or death benefit, your family would get a refund for the premiums you paid. That’s a lousy consolation prize in their time of need.

Now I am not a lawyer, I never was, and I never even had legal aspirations. So if you need a legal opinion that pertains to your situation, go talk to an attorney licensed in your jurisdiction. Sometimes the life insurance carrier would just settle for a lesser amount, but that still means you accidentally bought less life insurance than you thought you had.

The point is, if you really have your family’s best interest at heart, don’t lie.

Why do they do this?

Perhaps you are thinking this does not sound fair. But if we turn the tables and it is your company, how does it look? Someone knowingly makes a material misstatement (that’s fancy talk for “lie”) in a contract that you issue, you pay for reasonable verification of the facts, but then two years they die of something they knew about when they applied. Do you pay anyway? No, you probably wish you could contest the policy forever. The two year period (or however long it is in your state or province) was a compromise.

If the contestability period never ended, life insurance companies would hand out policies like candy and just contest every claim when it came back around. If there was no contestability period, the cost to insurers would skyrocket because of the increased research and falsified claims they would have to pay for. Life insurance would be much more expensive for all of us.

So if you buy insurance, you are admitting you do not know when you are going to die. If you knew, you would wait to buy a policy. So don’t mess things up for the first few years by lying on your life insurance application. You might think you are short-changing the insurance carrier when you might really short-change your family.

Oh yeah. Now you don’t have to lie on your application to find great quotes that deal with your particular situation. We invented the only way to get customized life insurance quotes from multiple agents without giving them your identity. Tell the truth and get great quotes at the same time.