Non disclosure of a material fact

I was asked recently the difference in cost between smoker and non smoker rates for a mortgage protection policy. It ended up being €35 a month. For a 25 year mortgage, this totaled €10,500 over the term of the mortgage. I also calculated the cost of her husband’s 20 a day habit would be €220,000 over that period assuming the cost of a pack increased by 5% each year!! I was then asked what would happen if he put down he was a non-smoker. I replied that it would be the non disclosure of a material fact.

What is the non disclosure of a material fact

When we fill out an application for any risk benefits (it applies to home and car insurance as well), there is a medical questionnaire that you have to complete. You have to complete this honestly and not lie on it. You cannot give an incorrect answer that may influence how an underwriter assesses your application. So don’t worry about saying you drink a few pints less than you actually do or you’re a few pounds lighter than reality. The answer you give has to make a material difference to how your application is assessed.

It must have been a fact that you knew at the time of the proposal. If you subsequently got an illness once the cover was in place, you do not have to disclose that. But if you get the illness between the time of submitting the proposal and the policy being put in place, you do have to notify the life company.

Why would people lie?

They are afraid of not getting cover. You are after jumping through all the hoops to get the mortgage and about to close and move into your dream home. At the final hurdle an insurance company rejects your application or significantly increases cover (the life cover requirement can be waived in these circumstances). To make it easier, you just lie about your medical history or weight (obesity is a big issue with applications these days) and get the cover in place.

Or maybe you don’t want to pay the extra premium. You think you’ll take your chances that they’ll find out that you smoke. Sure what if you get knocked down by a bus? What has that got to do with smoking?

What happens if you get caught?

You may get caught at proposal stage where you send in an application but they request a medical report from your GP and your medical history comes back from your GP. While they take a dim view of this, they will amend the proposal and price you accordingly.

More likely, they find out when a claim is made and you or your estate are looking for money from the insurance company. If they discovered the non disclosure of a material fact, they have the following options:

  1. The policy may be cancelled by the insurance company. They may refund the contributions.
  2. They may reject the claim and not pay out.

The most common cases of non disclosure

I rarely come across people trying to hide medical history. They know their doctor has all their illness on record and they don’t expect their GP to lie for them.

It is usually smokers trying to avail of the non smoker rates. I ask them to think of the consequences of non disclosure. Because they want to save some money, they are risking that the policy won’t pay out and their other half and children will be an income down but still have to pay this debt or go without the benefits of a life assurance policy. All of this stress on top of a family being without a parent. And as we have seen for the costs given at the beginning, the real saving isn’t from non smoker rates, it’s from not smoking at all!!

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