By: Edward L. Blais, JD, CIC
When it comes to insurance, honesty is not only a matter of personal integrity, it also makes good financial sense.
An issue that insurers sometimes run into is an insured’s failure to disclose something that could affect their coverage and how their premiums are set. In the insurance world, these omissions of key facts, or outright lies in some cases, are known as material misrepresentations. A ‘material’ misrepresentation has to be something ‘having real importance or great consequences,’ as Merriam Webster puts it.
According to the National Association of Insurance Commissioners ‘material misrepresentations’ consist of untrue statements or omissions that are material to acceptance of the risk that would either change the rate at which coverage is offered or would cause the insurer to avoid a coverage offer entirely.
Not letting your insurance carrier know that you recently installed a pool, that your teen has started driving the family car, or that you got a new dog are examples of possible material representations. You don’t need to share every detail: the dog’s color doesn’t matter, but the fact that it is a breed known for its aggressiveness, does.
Not disclosing such issues runs contrary to the whole purpose of insurance, which is to protect your from risk. If you don’t let your insurance agent or carrier know about the risks in your home, property, or car, then how can you expect them to fully insure you for those risks?
As the National Association of Insurance Commissioners puts it, “Insurance contracts require that both parties operate under the duty of utmost good faith.” You trust your insurance carrier has your back in case of an accident or some disaster and they, in turn, trust that you have provided them with accurate information.
Insurance is not a blank check and it’s not one-size fits all. Your premiums for a Tesla are not going to be the same as for a Toyota. Likewise, you should expect to pay more if your teen driver is now on the road as opposed to before. Insurance coverage and premiums are designed to match your specific risks, which presupposes that the homeowner or car owner has been upfront and honest about what those specific risks are.
Some people may think that holding back some information may avoid higher premiums and save them some money. But not disclosing risks and hoping you’ll be covered anyways is quite possibly a recipe for financial disaster. In the most egregious cases, information that could have greatly affected an underwriting decision could even void coverage.
One of the main purposes of insurance is to give you peace of mind. Not telling your insurance carrier about all of your risks undermines that purpose and robs you of that sense of peace. Plus, financially speaking, the risk of paying slightly higher premiums beats the risk of getting your coverage voided and having to pay for a loss that otherwise could have been covered.
Sources included: PropertyCasualty360, McWherter Scott Bobbitt, and the National Association of Insurance Commissioners.