While saving money on your auto insurance premiums by bending the truth may be tempting, consider what happened when a New Jersey woman was recently caught lying to her insurer:
According to the Hillsborough Patch, she pleaded guilty to insurance fraud for lying on her applications for coverage, which she had done for the past 13 years. Apparently, the woman stated that she was unmarried and was the only registered driver living in her household. In reality, however, she was married and lived with her husband, who did not qualify for insurance under the company’s guidelines because of his driving record.
The woman agreed to make restitution to the insurer and was ordered by the court to perform 50 hours of community service and placed on non-custodial probation. She could be ordered to pay back the more than $4,200 that her insurer paid out on a claim made in 2010 and could have to pay $39,000 in restitution for the discounted premiums she received by providing false information.
Lying to an insurer about your marital status is a pretty significant fib, and you can expect there to be consequences when caught, but there are other fibs you can tell a carrier that may seem innocent enough but could get you into serious trouble.
Professionals in the insurance industry will tell you to be as honest with your insurer as possible. Being untruthful on a policy application can lead to not being properly covered after an accident, having a claim denied ,or possibly even being sued by your carrier.
Unfortunately, many customers may feel tempted to tell what feels like a little white lie on an application to help get cheaper coverage costs. But the truth of the matter is that if answers are falsely provided it can be classified as material misrepresentation, and insurers can legally deny a claim because of a misrepresentation.
The average driver is aware that torching a car and trying to collect on a claim is considered fraudulent and illegal, but they may not think that omitting small facts like having a live-in boyfriend or girlfriend would be a big deal. However, there’s a good chance that if that boyfriend or girlfriend crashes the insured vehicle, it could cause coverage issues.
What Is Material Misrepresentation and What Are the Consequences?
To put it briefly, material representation is when you provide information to the insurer that is false and would have caused either coverage denial or a higher premium for a policy.
For example, if you are applying for auto insurance, many carriers will want to know of anyone who lives in your household who may access the car you’d like to insure. Failing to provide the names of any household members when asked could lead to a number of possible outcomes.
Probably the least serious outcome for failing to mention a household member when asked is having the insurer void the policy when it finds out during the underwriting process. Depending on the state and the resources available to a carrier, a quick search done by a policy underwriter could show any others who are listed as residents of the physical address provided on the application. In this case, the insurer will likely void the policy retroactively to the date it was signed.
While this may sound bad, it would actually be the best possible outcome — one in which no losses occurred during the policy period that will be affected.
But if there were any losses within the coverage period, the damages would likely not be covered and the vehicle owner would likely be responsible for paying for any repairs.
The consequences could get more complicated than that, though. If you have been found to be purposely untruthful to your insurer after claims have been processed and paid, you could find yourself paying the insurer back, as with the case of the woman from New Jersey.
Common Fibs Told to Insurance Companies
When you apply for insurance, a carrier can verify a lot of the answers you provide on the application, but there are many questions that rely on your honesty. Here are some common misrepresentations on coverage applications that could have negative consequences in the long run.
Annual Mileage: You will be asked how many miles your car will be driven in the next year, and since it’s impossible to provide an accurate answer, the carrier will ask you to give an estimate. Depending on where your estimate falls, your insurer will place you in one of its mileage-rating tiers.
For example, insurers will typically let you choose a range that you believe fits your driving habits. The options given usually look something like the following:
Keep in mind that this is just an example and each company has its own set of options.
Many vehicle owners will bend the truth and choose an option below what best represents their annual mileage. So what’s the big deal with saying you drive around 9,000 miles a year when you actually drive around 11,000? Well, how much you drive can help give an indication of how likely you are to get into an accident. Frequent drivers tend to get into more accidents, so underreporting of mileage may lead to a loss in premiums for insurers and often leads to higher rates for other policyholders to make up for the losses.
According to a report from Quality Planning (QPC), motorists fibbing about their annual mileage cost carriers about $1.4 billion in lost premiums in 2010.
Garaging Address: To get an insurance policy, you need to provide an address for where you live and where your car will be parked. Location can play a big part in what carriers charge to insure cars and cause a significant impact on the rate you’ll pay.
Some vehicles owners will list their address in suburban areas when in fact they live in big cities, where coverage tends to cost the most. According to QPC, this cost insurers about $1.4 billion in 2010 as well.
Vehicle Usage: It’s common knowledge that if you use your car for work and tell your insurer, your rates will probably increase. Consumers who lie about not using their cars for work cost insurers another $1.4 billion in 2010. On top of that, if you get into an accident while on the job, the insurer could end up denying the claim.
Other Things You ‘Forget’ to Tell Your Insurer
There are some instances where motorists may not notify an insurer of a small change to their living situation in order to keep costs as low as possible, but it’s always best to keep your insurer up to date with anything that could affect your policy.
If you have been receiving a discount that doesn’t apply to you any longer, for instance, you probably don’t want to run and tell your carrier to remove those savings.
A common discount enjoyed by policyholders is for being a good student. And with all the other considerations you have on your plate when you graduate, you may not even think about calling your insurer to let them know. But the fact of the matter is that you are getting a discount that you’re no longer eligible for, and if an insurer finds out, they can request that you pay them the missing premiums that weren’t collected because of the discount.
Policyholders who falsely received discounts accounted for roughly $2.4 billion of insurers’ lost premiums in 2010.
Another item you may forget to tell your insurer about or may not think necessary is getting a new roommate. You may think to yourself, “Why would I tell my insurer about my roommate if I know my rates will go up?”
Well, insurers want to be made aware of anyone who can drive and may have regular access to your car. If your new roommate gets in a wreck while driving your car and falls under this category, the accident may not be covered, and you and your roommate can be left footing the bill for accident-related expenses.
In the event that you don’t notify your insurer of a new roommate, they get in a crash, and the accident is covered, the crash may not be covered up to your full policy limits.
If your policy contains a step-down clause, your carrier will pay only up to the state minimum coverage levels after an accident involving a permissive user. So even if you buy $50,000 in property damage liability and you live in a state like Florida where the minimum property damage liability requirement is $5,000, insurers that include step-down clauses in their policy language will pay the minimum.
In this case, it’s best to let your insurer know about your roommate and consider adding him or her to your policy or removing the step-down clause.
Although you may not feel like paying more for coverage, being as honest as possible with your insurer helps ensure that you’re paying the right premium and that there will be no coverage-related issues when you need to file a claim. Saving a couple of bucks is not worth the risk of having a claim denied or having to pay thousands of dollars in restitution down the road.
