What Should You Do if You Gave Inaccurate Information to Your Life Insurer?

A recent report from Norwich Union, which sells pensions and life insurance, uncovered some startling truths about the number of people who provide misleading information on their life insurance forms. While the issue has long been a concern of industry officials and advice agencies, it has only recently become fully apparent how widespread the problem is. As part of its 'Health Shame' study, the British firm polled 5,000 existing policyholders, inviting them to review their original applications and change any information they knew to be incorrect. The result was that one in fourteen admitted to making some kind of error when initially completing forms.

Although there will always be a small minority of consumers who deliberately set out to mislead insurers, according to Holly Smart, Norwich Union's Media Relations Manager, the majority of applicants who give incorrect information are simply unaware of their mistake or too embarrassed to reveal the full extent of their bad habits such as junk food intake, lack of exercise, or alcohol consumption. In the same report, Norwich Union claims around 15% of respondents admitted to possibly returning misleading details about themselves.

Even small mistakes could result in dire consequences for a policyholder. According to Steven Weisbart, chief economist at the Insurance Information Institute, a growing number of grieving families are being refused insurance claims on the grounds that the deceased failed to disclose relevant facts when applying for cover.

In order to protect themselves against invalid or fraudulent claims, which can include withholding knowledge of even a mild medical condition, the life insurance industry has a number of safety checks it can, and normally will apply. These include blood and urine sampling along with a thorough review of all medical records, according to Byron Udell, the CEO and founder of AccuQuote. James Hunt, senior insurance actuary at Evaluate Life and an advisor to the Consumer Federation of America, says that new policies are usually held open for two years and any potential material misrepresentations analyzed.

Most companies have investigation units, made up of examiners, appraisers and adjusters whose sole task is to scrutinize suspicious applications. As well as the health checks and medical reports they may refer to, these teams have access to high tech software and a wide range of sophisticated methods for gathering background information including driver's license numbers, Social Security details, home addresses, aliases, phone numbers, criminal records, and a person's past claims history.

Detailed analysis of any new application is routine, according to Steven Weisbart, vice president and chief economist for the Insurance Information Institute. He points out that while investigating new claims in the past was a lengthy and expensive process, modern technology, including the internet, has made the process cheaper and easier, allowing companies to build up comprehensive profiles on their clients without trawling around different agencies.

A 2003 investigation revealed 49% of Americans believe people commit insurance fraud because they think they can get away with it, but Jim Quiggle, communications director at the Coalition Against Insurance Fraud (CAIF) points to the increasingly sophisticated methods being used by insurers to protect themselves. "Nobody knows exactly how many people return incorrect applications, but research shows that small dollar, garden-variety scams by everyday policyholders are a major source of fraud losses," according to Quiggle.

Repairing Inaccurate Information

So what should you do if you may have given inaccurate information to your life insurer? The first thing is to realize that your mistake or omission has a good chance of being discovered. Despite being the most common form of attempted deception, smokers are unlikely to fool insurers, declares Hunt, who is a former Vermont insurance commissioner and has advised thousands of people on life insurance policies.

Hunt strongly urges policyholders to review what is called the illustration of their new policy -- the completed document returned to your agent -- and to correct any mistakes before it is too late. "Sometimes answers get fudged," he claims, and they should always "be reviewed by the applicant."

Hunt also notes that most companies now consult with, and contribute to, the Medical Information Bureau (MIB) which contains coded information that other insurers may refer to before considering fresh application. Although there is no single shared database of flagged offenders, most insurance firms now have access to personal history information held by the Insurance Services Office which supplies data and what it describes as 'decision support services' to the industry.

Jonathan Sagar, Vice President of the MIB, believes that more consumers of life insurance should access and examine the same data that the insurance companies do. Not enough people are aware of the MIB, according to Sagar, or that the public is free to access the records it holds about them in much the same way they would use a credit repair agency. He estimates the number of mistakes is lower than Norwich Union's figures, claiming only around 2% of people who access their files request a clarification.

Weisbart favors better education for would-be policy holders, and while he doesn't believe genuine fraudsters should be given a second chance, he would like to see agents play a more proactive role, ensuring their clients are fully informed of their obligations.

Jim Quiggle, at the Coalition Against Insurance Fraud, agrees that even now a lack of resources and the scale of the problem, means some policyholders pay the price for mistakes when they file a claim and others are getting away with what is sometimes innocent -- and sometimes out and out -- fraud. He would like to see a two-pronged strategy of better education for the public and more creative sentencing for offenders. "It's not an either or situation," he says, "We have to educate the public ... to the strong probability of being caught and punished."

Harsher sentences are certainly one option being considered by law enforcers and the industry, but existing penalties for trying to cheat an insurer should be enough to make most us be sure we are careful, accurate, and truthful with an insurance application. Depending on the severity of each case, insurers have a range of actions at their disposal, from voiding cover to referring the case to law enforcers for prosecution.

When it comes to practical advice for anybody who may have given false information industry experts agree: honesty is the best policy. Speaking to your insurer is a good start claims Richard Fiene, an independent insurance expert in Minnesota. Telling them everything is vital, he adds. "Often an insurer will simply adjust rates and cover in accordance with any new information," he says, and his opinion is supported by Steven Weisbart, who points out that even high profile offenders, like smokers, may have to do no more than alter the content of their cover and make the necessary back payments.

Failure to reveal negative information about your personal health -- information that you know or suspect to be true -- might well invalidate a six-figure life insurance payout. At best a return of the original investment may be offered to your family, and that could be as little as a few thousand dollars. If you have any concerns about the information your insurer holds about you, or think you may have submitted incorrect details on your application, contact the Medical Information Bureau, request your file, and assess its content. While correcting it may be difficult, it is essential to inform your insurer of mistakes, take the hit, whether it comes in the form of reduced cover or higher premiums, and move on. Otherwise, you are running a high risk of financially compromising your family's future, facing criminal prosecution, and becoming uninsurable.