Lying on a Life Insurance Application Can Void All Coverage

An insurer is typically presume to know the rights at hold under the life insurance contract. However, if pertinent (i.e. material) facts are unknown or deliberately withheld from the insurers, the insurer’s actions in ignorance of these facts will not constitute a waiver of its rights. So if a premium payment were accepted on a policy applied for on a non-smoking basis, the insurer’s right to deny a claim would not be forfeited if the insured was in fact, a heavy and long-term smoker. The insurer did not have knowledge of this material fact.

Harsh as it may sometimes seem, most courts hold that “an applicant is responsible for the truth of statements in an application he or she signs”- even if the agent (or medical examiner) knew of misstatement and filled in an answer, accidentally, or on purpose, falsely. In other words, the knowledge of the agent is not universally imputed to the insurer. Nor will  knowledge of the agent be imputed to the client- even in those courts which do not hold the applicant responsible for reading the contract and a copy of the attached application- if the client colluded with the agent to defraud the insurer. 

Since the insurer has neither actual nor imputed knowledge, it cannot “knowingly” waive its right to cancel the policy.

Most courts hold the insured responsible for reading the application- before signing it. That also binds the policyowner’s beneficiaries. Obviously, this rule will not be applied if the agent lied on the application in order to make a sale and ripped out the copy before giving the policy to the policyowner. 

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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