What Is The Legal Significance Of A Material Representation In An Insurance Application?

Helen Skeates
Helen Skeates
11 min read

What is the relevance of a material representation in an insurance application? Well, it’s a complete list of all pertinent facts that insurance firms can use to make a decision about your insurance.

Insurance transactions necessitate the signing of a contract that specifies the terms, circumstances, and provisions that benefit both parties. Also included are benefits, strict limits, and situations that are unique to the consumer.

Before submitting an insurance application, you must disclose all of your assets and any relevant information that could affect the policy’s value. In this way, the insurance provider can figure out how much your insured asset is worth.

Legal Significance Of A Material Representation In An Insurance Application

There are some features that each party must seek for before the two sides may agree. For the insurer, they are looking for the best possible premiums at the lowest possible price. For the organization, it’s important to make certain that the customer is receiving an experience that is worthy of their money. Here we have a material representation. For example, a house is required to be included in the insurer’s asset list. A material representation document should indicate if the house has previously burned down or if the ceilings are squeaking.

What Is The Legal Significance Of A Material Representation In An Insurance Application? Read These Facts! - Krostrade

Using this information, a firm will then be able to estimate the value of your home based on its attributes. They have the option of either deducting this from the value or increasing your balance based on this information. In the context of an insurance application, what is the relevance of a material representation?

It will be admissible evidence in court because all of this information is contained in a formal contract signed by both parties. There are situations when you can use this as proof that your insurance company is legally compelled to help you out.

A lawsuit for significant misrepresentation, on the other hand, may be brought against you. In this case, the firm believes that you intentionally withheld bad aspects of your policy in order to raise your premiums. It’s possible that you’ll lose your insurance if you’re proven guilty.

Material Misrepresentation

It is possible for an insurer to purposefully or inadvertently misrepresent their assets, resulting in an underestimate of the true worth of the assets by the insurance providers. It is understandable for businesses to take this action to avoid wasting money, but you may utilize it for personal gain at times. They can exploit little information against you to lower the value of your assets by creating major concerns.

Your home’s lack of an alarm system, for instance, could be brought up as an example. They’ll be focusing on the tiniest details and exaggerating how it could be dangerous and thus a detriment to your home.

This is a ploy to get you to pay less for your insurance. The best course of action if you feel duped by this ruse is to speak with an attorney. You’ll be better able to defend your contract if you know what you’re up against. In addition, you’ll get the finest possible deal.

Defining “Material” and “Misrepresentation”

False representations about an important or substantial topic are known as “material misrepresentation” in legal parlance. The term “misrepresentation” refers to the act of telling a fib or omission in a contract, negotiation, or other legal document. A misstatement is considered “material” if it involves an aspect of the commercial or legal arrangement that is critical. To put it another way, a misrepresentation is significant if it has the potential to persuade the other person to take an action they otherwise would not have taken.

Material misrepresentation is commonly cited as a reason for insurance companies to reject coverage to policyholders or applicants. Material misrepresentation, as used in the insurance industry, is when a policyholder makes a statement or representation in order to receive insurance benefits to which they are not otherwise entitled. There are a number of ways in which a person may misrepresent themselves, for as by omitting their family history of terminal disease when applying for health or life insurance, or by lying about their smoking habits when applying for a job. If a claimant falsely claims to be disabled while having no actual symptoms of the sickness or injury they are claiming to have suffered, the claim may be denied. People who have been in an accident may purchase an auto insurance policy after the fact in order to claim that the event occurred while their policy was still in effect.

Concealment Definition

Providing false information to an insurance company is not only grounds for claim denial; it may also constitute criminal insurance fraud. Fraudulent insurance claims include, for example, a homeowner who intentionally burns down their house in order to collect their property insurance and then claims that the fire was an accident. Fraud may be committed if, like the above-described motorist, you purchase an insurance coverage after the fact and then falsely report the date of an accident.

What To Do When Accused Of Material Misrepresentation?

First, you should familiarize yourself with the basics of insurance before meeting with an insurance agency. Understand the fundamental terminology and familiarize yourself with contract prices, clauses, and hard restrictions. You’ve worked hard for your money, and it’s in your best interest to put in some effort when purchasing insurance.

Choosing a company is the next step, so familiarize yourself with how they treat their customers. Consider both positive and negative feedback. You don’t have to choose an insurance company based on the lowest price. Look for a good deal from a reputable firm that you can rely on.

Having decent insurance is simply a small component of getting a good deal. The most important thing is to work with a trustworthy insurance company. Before submitting an application for insurance, verify that the company has a solid track record of resolving crises and a high stock price.

Even if it’s not absolutely necessary, it’s a good idea to meet with a lawyer. Allow them to read the contract and ask questions if they have any concerns about the conditions. Using this method, you can eliminate the possibility of being duped. As a rule of thumb, if you have any questions or worries, don’t hesitate to contact a lawyer. They’ll alter the agreement to your advantage if it’s necessary. You can go over the terms with your fiduciary if you already have one.

Don’t freak out if you’ve been accused of making serious misrepresentations. To save money, the corporation may have made this decision. As soon as you’ve signed the contract, have it reviewed by an attorney. To avoid falling into the money laundering scam, it is imperative that you consult a lawyer before making any decisions, since you may be forced to sign low-cost plans that will reduce your policy. Getting legal counsel is the best way to determine your future steps.

If you don’t think the claims are valid and you haven’t omitted any significant details, you’re probably not guilty. Most likely, they’re just trying to convince you to part with more money. In court, your lawyer will fight back against the accusations. You could argue that the firm has unrealistic expectations of what constitutes a substantial depiction of its products. If you stress the ridiculousness of misrepresentation over a little matter, the jury may see your appeal.

The Two-Year Contestability Period for Life Insurance

When a “material misrepresentation” is found in your life insurance application, the insurance company is likely to “rescind” your coverage. Recission and claim denial are distinct yet nearly identical to each other for the insurance policyholder (your claim will not pay out). A rescinded policy means that the insurer has grounds to invalidate the policy, not just refuse the claim.

To cancel a life insurance policy, it is necessary to show that the initial application was fraudulent. As a result, the insurance provider argues, the policy was never lawfully agreed upon because the company was duped into selling it. Even after a coverage-inducing occurrence, rescission can occur (i.e., after the policyholder passes away). The life insurance company will return the policy premiums to put the parties back in the position they would have been in had the policy never been agreed upon.

Life insurance policies in California can only be canceled during the “contestability” period, which is a predetermined length of time. Within two years of the start of the policy’s coverage, a claim can be made for a refund. As long as a policyholder is still alive, the insurer can analyze the application for any deception, omission or falsehood in order to cancel the contract. Even if the policyholder is still alive, insurance companies rarely analyze policies until they are seeking to avoid paying out benefits.

To be eligible for rescission, the error must be “substantial,” as previously stated. It is possible for an applicant to make a “misstatement” if, for example, they misspell their home address. Rescission would be warranted if an applicant claimed to have no medical issues but in fact had a fatal liver ailment.

After two years, the insurance company cannot revoke the coverage, even if the application contains obvious lies. They are obligated to follow the rules. False statements in the application cannot be used as a basis for denial of benefits.

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Avoiding misrepresentations

What, therefore, is it about a piece of knowledge that makes it valuable? For example, it doesn’t matter what color the insured’s car is. Despite the popular perception that red automobiles are more expensive to insure, this is not the case. A policy’s acceptance or rating is unaffected by this. When it comes to underwriting the policy, the type of dog you have could have an impact. Many insurance companies have a list of dog breeds that are not covered. The color of the insured’s car is one thing; the breed of the insured’s dog, or whether or not the insured admits to owning a dog, is another.

The number of people working for a company is often overstated in workers’ compensation lawsuits in order to lower premiums. Workers’ compensation insurance premiums are heavily influenced by the size of an employer’s workforce. To avoid higher insurance rates, certain firms have been known to bribe employees into not reporting workplace accidents.

False statements about the use of the property, animals, number of drivers, business activity, number of workers, activities of the insured, and any other such information would be considered material facts for underwriting. An insured may use his employer’s address on the application for automobile insurance if rates are lower at his employer’s place of business. A relevant fact is that the carrier would have rejected or assessed the application differently if it had been aware of the facts at the time.

Misrepresentation of material facts in an application is bad enough; however, when it comes to claims, it is far worse. People driving without insurance can now purchase a policy online after an accident, before the police arrive, then report the claim to the carrier after the fact, giving the company a false time and date of the accident. If the company had known about the accident, it would not have granted coverage, and it may not have even issued a policy at all.

The problem is that these kinds of situations do happen, and so do situations where people burn houses and cars for insurance money, claim that phantom vehicles hit them when the insured actually hit a tree or some other object, claim that they had expensive personal property when in reality they did not, and many other forms of misstatements or outright fabrications.

What Are the 5 Parts of an Insurance Policy?

Carriers and other insureds suffer financial losses when application or claim information is falsely reported. A variety of reports must be used by carriers in order to validate the information they have been given concerning a particular risk. Inspection of the property and evaluation of loss records for the previous three years may be required. Witnesses and others need to be questioned; weather data may be sought if an insured claims that a lightning strike or hailstorm occurred when the claim information does not appear to match the alleged damage. In order to avoid paying out on fraudulent claims or providing coverage based on incorrect information, the industry spends millions of dollars checking data and conducting investigations.


Make informed choices now that you understand the legal relevance of an insurance application’s material representation. As a money manager, it’s imperative that you take preventative precautions. The best of luck to you!

Helen Skeates

Helen Skeates

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