If you are a life insurance holder or intend to acquire such a policy, it’s important to bear in mind that it might not be smooth sailing when setting it up. The beneficiaries of the insurance coverage might be denied the promised claim even when the covered misfortune occurs. Misrepresentation life insurance is among the major causes of life insurance claim denials and cancellations by insurance companies. Therefore, basic knowledge about the issue will help you big time while you are applying or assisting someone to apply for a life insurance cover to ensure that the cover serves the intended purpose when the insured dies. Also, with the knowledge, you’ll be able to handle a declined claim as a result of a misrepresentation issue better. Here are some of the fundamental things that you need to know about misrepresentation life insurance:
- What is it?
Misrepresentation occurs when a person or a company makes statements that are not factual while entering a contract. When it comes to a life insurance policy, one might give in untrue information knowingly or unknowingly. Insurers and courts treat a misrepresentation material or immaterial depending on its influence on the decision of the insurer when issuing the policy in question. It is considered material if it affects the decision substantially, especially with a likelihood to cause loss to the insurer. It’s immaterial if it doesn’t affect the insurability of the person insured by the policy.
2. Failure to read the contract’s terms keenly can lead to misrepresentation
Although insurance misrepresentation laws differ from one country to another and from one state to another, the misrepresentation resulting from the negligence of an insured person during life insurance policy application can lead to the termination of the policy. For instance, according to Alabama law, a person who understands English can’t avoid the legal consequences of accenting to the answers on an insurance application simply because he/she didn’t read the documents well, as long as she can read and understand English. If a misrepresentation arises from such a situation, it might lead to the termination of the policy or denial of a submitted claim’s coverage.
3. Misrepresentation doesn’t always result in the rescinding of a life insurance cover
A misrepresentation might occur before the occurrence of a covered loss or after the loss. In case it happens before the loss, the insurer can terminate the policy. Otherwise, a misrepresentation after a covered loss can only lead to denial of the submitted claim’s coverage by the involved insurance provider.
Also, a misrepresentation has to be material for an insurer to use it as a basis of rescinding the policy or denying the submitted claim. In case a material misrepresentation is established in the application of the policy, the insurer can opt to decrease the death benefit according to the amount of premium that was supposed to be paid considering the new facts instead of failing to pay the entire benefit.
4. You can contest a misrepresentation case by an insurer
You should not just throw in the towel if you have submitted a life insurance claim but the involved insurance company tells you that they can’t accept it, citing misrepresentation as the reason for their failure to pay the benefits. Insurance providers don’t always have the final word. Instead, consider getting a lawyer to help you review the situation professionally. With the help of life insurance lawyers, many people who’ve had their claim applications initially rejected by insurance providers finally get the benefits they deserve.
To avoid all these issues, it’s advisable that you avoid giving false information or withholding information for whatever reason while applying for a life insurance policy or submitting a claim for the same. However, if the damage has already been done, seek legal advice from an insurance lawyer.