What Is the Penalty for Misrepresentation in Insurance?
- Insurance companies have a contestability period, usually two or three years, to challenge a claim based on evidence of misrepresentation. Once the contestability period ends, the insurer will not be able to deny a claim based on the information provided on the application unless the company can prove fraud.
Types of Misrepresentations
- Some of the most common types of misrepresentations include a person's occupation, hobbies, assets, age, alcohol and tobacco usage and income.
- If an insurance company wants to cancel a policy because of misrepresentations, the company must satisfy four requirements. Insurers must prove the misrepresentation exists, that the misrepresentation is fraudulent or material, that the misrepresentation persuaded the insurer to grant coverage, and the company must justify their reliance on the misrepresentation.
- Insurance application information is stored with the Medical Information Bureau (MIB). If a person is denied coverage and applies with another company, that company also has access to the application information. The information is stored to prevent insurance fraud, which is when someone lies on their application to get coverage.
- If a person is found to have provided misrepresentations on an insurance application, then coverage will be denied. Misrepresentations can cause policies that are in force to be canceled and claims to not be honored by the insurer.