So, you’re looking for a life insurance policy. Maybe you’ve recently gotten married or become a parent. These are the situations that prompt many people to seek coverage. Before you can get a policy, however, you’re going to have to go through some sort of application process.
This process may intimidate you. Maybe you’re a smoker and you’ve heard life insurance companies don’t issue policies to people who smoke. Or perhaps you’re overweight and worried that the extra 30 pounds you put on in the last decade will raise your premiums. Maybe you’ve just entered a new decade of your life and you’re concerned that you’ve bumped up into a bracket of individuals that has to pay higher premiums.
These are all realistic concerns. If you belong to any one of those categories of people (and countless more), you’re likely to pay higher premiums for life insurance. You may not like that result, but it is better than the alternative.
As attorneys who specialize in the denial of life insurance claims, it is our job to seek justice for people who have had their claims wrongfully denied. Sometimes, however, there are life insurance policy beneficiaries that we are unable to help. It is through no fault of their own that their claim has been denied. Read on.
The law of material misrepresentations
Legally speaking, a life insurance policy is a written contract between the life insurance company and the person it has agreed to insure. A contract is an exchange of promises. In this context, the life insurance company promises to pay a designated person a certain amount of money when the policyholder dies. In exchange for that promise, the policyholder agrees to pay the company monthly or annual premiums. It seems pretty simple, right?
Not so fast. The details of that contract depend heavily on what the parties say to one another during the negotiation process. The negotiation takes place when the potential policyholder goes through the application process. It is during that process that the insurance company learns important information that will determine the agreement it may make with that person.
Let us explain. If, for example, an applicant reveals that she has high blood pressure, the insurance company may still issue her a policy, but it will likely charge her higher premiums then it would another woman in the same age bracket who did not have high blood pressure. The life insurer does this because, statistically speaking, the woman with high blood pressure is unlikely to live as long as the woman without it. Thus, by collecting higher premiums from the first woman, the life insurance company is trying to collect as much money as it can before she passes away.
Of course, many people have a vague understanding of these concepts. Some of the more unscrupulous among them believe they can game the system. Typically, they attempt to do this by lying in their life insurance application about something they suspect will cause the life insurance company to charge them higher premiums (or to refuse to issue a policy at all).
In reality, many people get away with this -- or at least they think they do. After lying in their life insurance application, they may be issued a policy at a premium rate that is much lower than it would have been if they told the truth. That seems like a win for the consumer, right? Again, not so fast.
This is where the law of material misrepresentations comes into play. This is a concept from contract law that basically says this: if a person lies during contract negotiations about something that would have caused the other party to avoid (or significantly change) the contract, the second party may be able to avoid its contractual obligations. A lie of that caliber is deemed to be “material” and the law takes it very seriously.
Why should you care if you can get a policy anyway?
Many of you may be wondering Why we are even talking about these concepts. If you can lie during the life insurance application process and get away with it, what's the harm? The truth is, if you are the policyholder, your lie may not impact you in your lifetime. You will be issued the policy you wanted at a lower premium then you may have been entitled to.
Do you want to know who your lie is going to hurt? Turns out, it will hurt the very people you were trying to protect by getting the policy in the first place -- your beneficiaries. This is because the life insurance company is likely to discover your lie after you pass away. Remember, however, your death is what triggers the life insurer’s obligations under the policy. It is at that point that they are supposed to make a sizable death payout to your beneficiaries.
If they discover a material misrepresentation in your application before making that payout, they may refuse to pay anything at all. Worse yet, the law will typically support them in this decision. And trust us, the life insurance company will do everything it can to catch you in a lie.
For example, if you said you were a non-smoker in your application but you really were a heavy smoker for years, the life insurer may begin an inquiry if you die from lung cancer. It may also scan your social media profiles to see if there are pictures of you smoking. They’ll stop at nothing to avoid paying out on a policy.
The moral of all this, of course, is that you need to tell the truth in your life insurance application. You may pay more in premiums while you’re alive but it may be the only way to confidently protect your loved ones after you die.If you have questions about these concepts or have had a claim denied based on an alleged material misrepresentation, call our office today. We're here to help.