You may be afraid that you could potentially be rejected from being able to get a life insurance policy. That fear is perfectly natural. It may be unfounded, or you may have a reason to be afraid that you could be rejected. At any rate, some people deal with the fear by not telling the truth on their life insurance application. They may not mention their high blood pressure, or they may hide information about their skydiving hobby.
The importance of the contestability period
Some may think that they are getting away with it, but it is an extremely bad idea to do anything but to tell the truth, the whole truth, and nothing but the truth when it comes to filling out a life insurance policy. Generally speaking, there is a two-year contestability period with life insurance companies. That means that if the life insurance company finds out that you did not tell the truth on your insurance application or during the process, and made a material representation, the firm has the right to cancel your policy, or to not pay out on the claim. In such a case, a material representation means a misstatement that matters so much to the insurance company, that they would not have sold you the policy.
What can happen if you do not tell the truth
Here are a few examples – you say that you do not smoke, but chances are, as part of your physical, there could be a test which shows the levels of nicotine in your system. You could be rejected from getting life insurance for this misstatement. It is also possible that you could pass the physical, yet develop emphysema and lung cancer from smoking shortly after getting the policy. If you were to pass away during the contestability period, what your beneficiaries may discover is that your life insurance company could refuse to pay if it turns out that you did not tell the truth about your nicotine habit. After all, if you had, the insurer may have charged you higher rates or refused to sell you a life insurance policy at all.
Another thing that comes up are lies about hobbies. For example, if you like to fly planes in your spare time, you really have two options when it comes to getting a life insurance policy. Tell your insurer about your piloting hobby, or stop the hobby. Because if you do not do either, and end up passing away due to you getting in a private plane crash where you flew the plane during the contestability period, your life insurance company could potentially decide not to pay on the claim.
Keep in mind that when it comes to health issues, anything you leave out of the application may very well be discovered in a medical exam prior to you getting the policy. If it is not, or you did not have to get a medical exam – you only needed to answer questions about your health – you still could potentially face the consequences of not telling the truth. This most notably will happen if you were to die of whatever ailment, issue, or disease you had withheld information on, and your beneficiaries may potentially not get any money from your policy due to the issue.
Not everything you need to tell the truth on involves health
Other things you may be asked about that you should tell the truth on include your income, whether you have a criminal record, and your creditworthiness. If the life insurance company finds out information contrary to that, you could pay the price by being denied a new policy, having your rates increase, or having your current policy cancelled.
In short, honesty is the best policy when it comes to life – and life insurance.
Lisa Swan is a frequent contributor to life insurance and financial planning blogs, including Best Life Insurance Deals.