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The biggest lies told on life insurance applications

The price of your life insurance policy depends on your answers to a range of application questions, plus the results of your life insurance medical exam.

Some applicants succumb to the temptation to lie on their applications, hoping their misrepresentations will sneak through the approval process and earn them a lower rate. Here are some of the most frequent lies discovered by life insurance companies in the process of screening applications.

I don't use tobacco

The desire to garner low cost life insurance drives many applicants to not only check the "nontobacco" box on the application but also to abstain for several weeks prior to the medical exam so that nicotine (or, more precisely, cotinine) does not show up in their lab results.

"We probably see more of this than anything else," says Brian Ashe, past chairman of the Life and Health Insurance Foundation for Education. And some applicants may lie unintentionally. Applicants who use nicotine in other forms, such as a nicotine patch or chewing tobacco, may not realize they are in the "tobacco" category.

"In their own minds they are not tobacco users, but in life insurers' eyes they are, in terms of disclosure," says Ashe.

If a life insurance company finds out a person lied about tobacco use after they die from a related cause, there are two common outcomes: The company could alter the death benefit to be equal to the amount the person would have gotten had they paid tobacco rates, or the company could possibly rescind the entire policy. A life insurers' range of remedies depend on state law. Ashe says rescissions are generally limited to within the first years of the policy, known as the contestability period.

Lynn Patterson, chief underwriter for alternative and strategic distributions at ING, says, "It doesn't pay to lie on your application if the company would have insured you, but at a higher rate. For example, had I told the truth about tobacco I would have gotten the policy at a tobacco rate. If I die within the two-year contestability period, the company can deny the claim and the family is not protected."

I don't do drugs . . . and I'm bald

Illegal drug use is a habit that many applicants try to mask. Even if blood and urine lab results come back clean, hints of drug use could pop up in a person's criminal history or medical records (everything from drug treatment to a casual mention of it to a physician).

If a life insurer suspects drug use, it could ask for a lock of hair from an applicant — where evidence of drugs can reside for up to a year after use. "I have seen people who have been approached to get a lock of their hair go get their heads shaved," says Ashe.

Drug use doesn't necessarily knock you out of contention for a policy. Ashe says some insurers will issue policies to admitted marijuana users (if they're not abusing it) — but not at the best rates.

I'm not depressed

Neglecting to mention depression is common, says Patterson. Depression can be impossible to detect by an agent or the paramedical who performs the medical exam. However, any medical diagnosis of depression will be apparent in your medical records.

I only had that one DUI

Lying about drunk driving convictions happens, but Patterson notes that it's really the second, third and fourth DUIs that applicants lie about.

I have just two moving violations

Applicants are also prone to misrepresenting the number of moving violations they have racked up when they ask for life insurance quotes.

"They may not admit to number three and four," observes Patterson.

But the truth about DUIs and moving violations is usually revealed when the insurance company pulls your motor vehicle record (MVR).

And if what you say about DUIs and moving violations does not match up with what's in your MVR, insurance underwriters will always give more credibility to the MVR provided by the state department of motor vehicles when it contains more information than what was provided on the application. If there is a gross discrepancy, it will alert the underwriter to look for other possible material misrepresentations.

"When the client tells the truth and it matches on the MVR, we feel better that the whole risk is being portrayed to us," says Patterson.

There's no cancer in my family

An applicant's own history of cancer — along with cancer among immediate family members — will result in a higher life insurance cost, increasing the temptation to fudge.

Any personal history of cancer is no doubt in your medical records, and so is a family history — you were likely asked about it when you first went to your doctor's office and they recorded your family medical history.

I don't plan to travel anywhere dangerous

Ashe says that there has been an increase in applicants who misrepresent their travel plans, especially as more parts of the world become dangerous. Sometimes applicants will admit to travel but "adjust" their travel times, such as saying they'll be traveling in a dangerous land for only two weeks when in fact they plan to reside for an extended period of time.

I make $100K a year fixing cars

Some people will lie about their income in order to receive more coverage than they're eligible for, says Patterson. He recalls a California couple who recently claimed that the husband was a self-employed mechanic making $100,000 a year, with a net worth of $100,000, and that the wife was a self-employed housekeeper making $50,000 a year.

When the red flags go up on a case like that, insurers may pull a credit report or ask applicants to fill out a financial supplement that details assets, liabilities and other information.

Shooting yourself in the foot

If misrepresentations or omissions are found by an insurer before the policy is issued, it will adjust your rate accordingly based on the truth. But an intentional lie will also cast doubt on the rest of your application, which could compel the insurer to examine everything more closely and possibly delay its decision.

Lies discovered after a policy is issued can come back to bite an applicant. Any lie caught within the two-year contestability period of a policy can cause the insurer to scale down the death benefit or even rescind the policy, depending on state law. After the first two years, a policy is generally incontestable, except where there is a question about "insurable interest" — meaning someone took out a policy on someone else without qualifying to do so. For example, a spouse or a business partner generally has "insurable interest" in your life because they depend on your production of income.

Ashe points out that a life insurance application becomes part of the legal document that is the policy. So lies within the application become fraud. Consumers "have to understand that when they sign an application, the application becomes part of the contract. You'll see your application in the policy. If they thought of it in those terms, they might be more careful of their statements," says Ashe.

How life insurance companies discover the truth

Insurers may use any of the following to verify the information in your life insurance application.

Paramedical exam

MIB Group
MIB maintains a database of information from previous life, health, disability income, long-term care or critical illness insurance applications you've filled out.

Motor vehicle reports

Doctors' records

Pharmaceutical database searches

Credit reports

Autopsy report
To determine cause of death if the insurer suspects fraud on the original application.

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