Misrepresentation
Definition:
The act of making false statements or intentionally providing fake information or
details during the purchase of a life insurance policy is known as misrepresentation.
In case of misrepresentation by the life insured, the insurance company has the right
to terminate the policy.
Description:
Misrepresentation is generally conducted by the policyholders. They provide details
that are not genuine while signing the insurance policy. There are three types of
misrepresentation. Below is the explanation:
1. Fraudulent misrepresentation: When the policyholder provides false
information with an intent to take undue advantage of the insurance policy.
2. Innocent misrepresentation: When the policyholder gives information that
he/she believes to be true at the time of contract signing. But actually, the
information is false.
3. Material misrepresentation: When the policyholder fails to disclose or
intentionally hides sensitive information (like pre-existing medical conditions)
that can impact the policy issuance is known as material misinterpretation.
Example:
Mayank was interested in buying a term insurance plan. He requested a ₹1 Crore
term insurance policy quotation from a life insurance company. In order to take
advantage of a low premium, he did not disclose about his smoking habits while
filling out the forms. The insurer accepted his proposal based on the information
provided.
Unfortunately, Mayank contracted lung cancer after a few policy years. As cancer
was covered in the term insurance policy, he filed a claim. While filing he submitted
all the required documents. While analysing his medical reports the insurance
company found out about Mayank’s smoking habit. As he tried hiding this sensitive
information from the life insurance company, this came under misrepresentation.
Based on this activity of Mayank, his claim got rejected despite all the premiums
being paid.
What Is Misrepresentation in Insurance
Law
Generally speaking, under the law, misrepresentation is one of the elements of fraud
and other fraud-based legal actions. The law dictates that all contracts, including
insurance contracts, are subject to good faith. As a result, both the insurer and the
prospective insured must act in good faith throughout the contract’s duration. Giving
false statements during this process to the other party constitutes the element of
representation, which, by implication, becomes illegal. Therefore, both the
misrepresentation insurance definition and the misrepresentation meaning in law are
practically the same. However, what the law does is give room for legal actions and
implications.
How to Protect Yourself From the
Misrepresentation of Information from
the Insurer
People often buy the insurance and then put it away until a loss happens, and a
claim is made. Some people then find out their policies don’t cover everything their
agents said they would or even have no coverage. Many innocent individuals have
different stories of how the agent falsely presented certain terms, leading them to
pay significant amounts of money, ultimately leading to nothing.
To protect yourself from such unexpected mishaps, here are a few tips:
1. Choose an insurance plan you can afford;
2. Conduct your research to see how stable the company is;
3. Do not purchase a plan you don’t need;
4. Be sure to get a second opinion;
5. Thoroughly go through your policy;
6. Know the punishments and penalties for making withdrawals from your policy
or plan; and
7. Finally, keep track of your investments and stay informed.
Conclusion
Insurance’s ultimate goal should be to protect your interests in case of unforeseen
circumstances, and the existence of misrepresentation (by either party) defeats that
purpose. Thankfully, the law provides for seeking remedies and compensations in
case of such acts. Be sure to speak to your attorney to seek further advice if you find
yourself in such situations. Provide them with all the necessary information and
documents to prepare for any obstacles that may come up, such as an outright
denial by the alleged party. Do not feel anxious and leave any facts out because the
attorney-client relationship between you automatically protects your information.
