Lies, omissions in insurance can hit hard

Lying on your insurance policy is a direct invitation for the company not to pay out your claim.

But that reality hasn't stopped one in five Canadians from doing exactly that, according to a new poll from TD Insurance, which found 19 per cent of Canadians have not been "completely truthful or omitted information" on their application. That's up from 13 per cent in 2011.

So what's going on? Are Canadians leaving out a few minor details to save some cash and get a cheaper rate? The same survey found 21 per cent of Canadians have cancelled insurance to save money.

Dave Minor, vice-president of TD Insurance, preaches full disclosure if you want to make sure your claims are covered.

"It's stretching things and failing to disclose," says Minor, about what is left out on forms. "A frequent one when it comes to life and health insurance is pre-existing conditions and medication, visits to the doctor, that sort of thing." The problem is if you fail to disclose your diabetes and get hit by a car.

It won't matter that the accident had nothing to do with your condition -- your beneficiary might still be denied coverage because that bit of information was not disclosed.

"It doesn't seem to make sense to the consumer," Minor says. "The fact of the matter is that if you had disclosed that medical condition, we might not have approved you in the first place." You might not be denied insurance, but the insurance might also specifically not cover you for pre-existing conditions.

Minor says misrepresentations generally fall into three categories.

"There is the innocent category that 'I forgot, I didn't think it was important or I misunderstood the question.' The other two categories are 'I was worried I wouldn't get approved, so I neglected to mention something.' The third might be trying to keep your premiums down a bit." The best thing to do if you have made a mistake or have a change of heart on what you filled out is to tell your insurance company. It could mean your policy is now rejected, more expensive, or there may be no impact at all.

TD Insurance declined to say exactly what percentage of claims get rejected, saying it is industry information. "It's pretty low -- single-digit. Some folks might think it's more because that's what hits the media -- the bad news," Minor says.

Lawyer Michael Smitiuch of Smitiuch Injury said in some policy situations, insurance companies don't conduct much due diligence before giving someone a policy. "They do a standard questionnaire that is pretty basic and they don't dig any further. They don't request your medical records or anything like that," he says. "It's not until you die that they start looking into it in a lot of detail." He says insurance companies will look for a pattern of misrepresentation on something such as whether you have smoked marijuana in the last three years.

"In standard policies, there is usually some type of questionnaire," Smitiuch says, adding each insurance company has a different underwriting procedure. "There is a difference between a material representation and a non-material representation." Clay Gillespie of Rogers Group Financial, who has been selling insurance for 20 years and never not had a claim paid, says the key is the amount of due diligence that is done before a policy is approved.

"We have had severe underwriting at death," Gillespie says. "What I mean by that is something seems suspicious, so they ask for doctor's reports going back 10 years. They haven't rejected, but they sure have tried." One of the key differences for consumers is how much due diligence is done by the insurance company before a policy is issued. For travel insurance policies, there is very little policing beforehand, so when a claim comes in for hundreds of thousands of dollars in medical tests, investigators are dispatched. It's simply too expensive to vet travel policies beforehand.

The process is the opposite for life policies. "First they ask you a bunch of questions and then they ask your doctor a bunch of questions," Gillespie says, adding that method is far more likely to discover some sort of oversight.

Outright lying will ultimately land you in the most trouble. "It's not worth it. You cannot fix it after you're dead," he says.

-- Postmedia News

Republished from the Winnipeg Free Press print edition July 12, 2012 B6