Life insurance lies dangerous when you need to make a claim

Life insurance companies will avoid paying out claims if they can, and too many Australians are giving them a reason to reject.

Lying to get cheaper life insurance appears to be a popular – but financially dangerous – strategy among Australians.

New research by Finder.com.au has found more than 1.2 million people have lied on life insurance applications – most commonly about their mental health history, smoking and alcohol consumption.

Men are almost 50 per cent more likely to lie than women, it found.

Life insurance premiums are lower for people with less risk of making a claim, but lying on applications can be extremely costly because insurance companies will always investigate claims rigorously and look for valid reasons not to pay out.

Finder insurance spokesman Gary Hunter says life insurance companies can request your medical records and other information related to your claim.

“They’re also able to request financial records if they can show why it is relevant to your claim,” he says.

“Your policy could likely be worthless if the insurer finds out you’ve lied on your application.

This is not what you want to see when making a life insurance claim.

“Providing false information to an insurer is fraud and if discovered, your claim will be denied and your policy voided.”

Life insurance is an umbrella term covering term life (death), total and permanent disability, income protection and trauma/critical illness insurance.

Behavioural economist and author Phil Slade says people often lie to themselves as well as their insurer, with an “optimism bias” that they will stop bad habits before any potential claim is made.

“They are often filling out an application form for how they will be in the future – not how they are now,” he says.

“They may say ‘I’m not a smoker now, because in 10 years’ time I won’t have been smoking for 10 years’.

“And if they don’t think you can prove it, why would they tell you it? If they think they can get away with it, they will.”

However, life insurance companies have been known to chase medical records across international borders, from retired doctors who may have been a person’s GP a decade or two ago.

Slade says men lie more because they generally take a more aggressive approach to life and financial matters.

“Men are less agreeable by nature as a personality trait – we are more likely to take risks,” he says.

Finder’s research found that other areas that life insurance applicants lied about were pre-existing conditions, hobbies such as extreme sports, and working in dangerous jobs.

“Even if your insurance company doesn’t discover the truth right away – they will research your history if a claim is made,” Finder’s Hunter says.