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When purchasing a homeowners insurance policy or filing a claim, it’s important to be completely honest with your insurer. Misrepresenting facts can have a substantial financial impact on both insurers and policyholders.
As the insured, misrepresenting facts can lead to a claim rejection or a denial of coverage. Knowingly misrepresenting facts to gain a benefit you’re not entitled to is considered insurance fraud, and you can be charged with a felony.
Here’s what you need to know about material misrepresentation in insurance:
- Material misrepresentation in insurance
- Examples of material misrepresentation
- When can material misrepresentations occur?
- Can my insurer cancel my insurance policy for material misrepresentation?
- How to avoid material misrepresentation
Material misrepresentation in insurance
“Material misrepresentation” is a fancy way to say you gave your insurer information that was false (intentionally or unintentionally), or intentionally omitted important information. If a misrepresentation is intentional and material, your insurance provider can void your insurance policy.
Insurers take this seriously because misrepresenting the truth about yourself or your home can affect your insurance premium, or even whether an insurance carrier would approve you for a policy in the first place.
Two types of material misrepresentation in insurance:
- Lies of omission: Withholding important information in order to mislead
- Lies of commission: Intentionally providing false information
In other words, withholding information and intentionally lying both meet the standard for material misrepresentation and the consequences that come with it.
Examples of material misrepresentation
Even though some omissions or misrepresentations may seem harmless, risking the rejection of a claim to save a few bucks on your premium isn’t worth it. After all, the purpose of insurance is to have coverage when you need it most.
Here are some common examples of misrepresentation on a home insurance application or claim form:
- Property value: Some homeowners may lie about the actual value of their property to get a lower premium.
- Renting to tenants: In some cases, a homeowner may not live on the property, and instead rent the home to tenants. Other times, the owner may rent out a room in the home as a short-term rental. Either way, concealing this information from your insurer is material misrepresentation.
- Home improvements: Whether intentionally or not, many homeowners fail to notify their home insurance carrier about renovations or additions that may increase their home’s property value. However, not including the additions in the policy means they won’t be insured if they sustain damage.
- Dogs: Home insurance providers paid $675 million in liability claims stemming from dog bites and dog-related injuries in 2018, according to the Insurance Information Institute and State Farm. Homeowners insurance providers typically don’t cover certain breeds, including pit bulls, rottweilers, German shepherds, mixed-breed dogs, and American bulldogs. Lying about having one of these breeds of dogs is material misrepresentation.
- Swimming pools: Swimming pools carry the potential for serious accidents. But you can purchase additional homeowners insurance coverage for your pool. Unless you notify your insurer and purchase this specific coverage, your policy likely won’t cover the pool. Failing to inform your insurance carrier about having a pool is a form of misrepresentation.
- Trampolines: Like swimming pools, trampolines increase an insurance provider’s liability risk. Consequently, many insurance carriers don’t cover trampolines. Some homeowners may not want to pay the higher insurance costs for coverage from insurers that do cover trampolines, so they may not disclose that they have a trampoline.
Check Out: Does Home Insurance Cover Water Damage?
When can material misrepresentations occur?
Material misrepresentations can happen when you purchase a policy or when you file a home insurance claim. You may notice a warning statement about material misrepresentations on insurance applications and claim forms.
The critical question is whether or not a misrepresentation is material. For example, mistakenly listing your home as being built in 2004 when it was really constructed in 2005 may have little bearing on your policy’s acceptance or premium.
On the other hand, failing to tell your homeowners insurance carrier you rent a bedroom to a relative — which could affect how your policy is underwritten — might constitute a material misrepresentation.
Can my insurer cancel my insurance policy for material misrepresentation?
Yes, many homeowners insurance policies explicitly state that your policy will be void in the event of material misrepresentation.
If you conceal or misrepresent facts, participate in fraud, or intentionally lie, your insurer can rescind your coverage. These policies also state that if a carrier issues a policy or sets a premium rate based on a material misrepresentation of facts, the insurer may cancel the policy.
How to avoid material misrepresentation
You may have to pay for damages out of pocket if a material misrepresentation, whether intentional or not, leads to a policy cancellation or claim denial. Avoiding material misrepresentation altogether is the better option. Here’s how to do that:
- Be honest. The best habit you can practice to avoid material misrepresentation is always being completely truthful when communicating with your homeowners insurance provider. Whether you’re filling out a policy application, filing a claim, or speaking with an agent, make your best effort to be honest.
- Ask questions. It’s important that you understand the questions you’re answering when filling out a home insurance application or claim form. Clear any doubt by asking your agent to explain any questions or statements you’re unsure about.
- Understand what’s required of you. Review your policy contract to ensure you understand what information you must report to your insurer. For example, if you plan on putting a trampoline in your yard, talk to your insurance carrier beforehand to make sure it’ll be covered.
- Periodically review your policy. Even when an agent works with you to fill out a policy application, the process may be hasty. In these situations, it’s easy to submit incorrect information unintentionally. Pulling out your policy to double-check your statements may make sense as a safeguard against misrepresentation.
Remember, homeowners insurance aims to help you repair or replace your home when it’s damaged or destroyed after a covered event. When disaster strikes, the last thing you want to happen is a denial of insurance coverage or a cancellation of your policy.
Disclaimer: All insurance-related services are offered through Young Alfred.