What are the risks of lying about damage/theft to get insurance $?
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The Risks of Lying to Your Insurance Company
We’ve all been tempted to bend the truth a little to get a better deal. But lying to your insurance company can have serious consequences, including denial of your claim, cancellation of your policy, fines, and even jail time.
Why People Lie
There are a few common reasons why people lie on their insurance applications or claims:
- To get a lower premium – For example, saying you drive less miles than you do or that your car is garaged when it’s actually on the street
- Out of desperation – Some people lie because they are in financial distress and need the insurance money
- Opportunity – It can be tempting to inflate a claim if you think you can get away with it
Types of Lies
Some of the most common lies told to insurance companies include:
- Exaggerating damages from an accident or disaster
- Staging accidents or thefts to file a fraudulent claim
- Lying about who was driving the car
- Failing to disclose previous damage
- Lying about the primary location where a car is garaged
While some of these lies may seem harmless, they can have significant consequences.
Consequences of Lying
Claim Denial
If your insurance company discovers you lied on your application or claim, they can deny paying out your claim. Even if the claim itself was legitimate, material misrepresentations can give insurers the right to deny the claim.
Rescission of Policy
In some cases, lies can allow an insurance company to rescind your entire policy, essentially treating it like it never existed. This means you would have to pay back any claims already paid to you. Rescission usually happens if you lied during the initial application process.
Fines & Legal Penalties
Insurance fraud over $5,000 is a criminal offense in Canada. If convicted, you could face fines up to $1 million and jail time up to 14 years. Smaller frauds can still involve fines and legal penalties.
In the US, the penalties can be even more severe. Committing fraud over $1 million carries a minimum sentence of 2 years in prison.
If your insurer doesn’t outright cancel your policy, they will likely raise your premiums after discovering fraud. Some insurers also share information, so it could become difficult to get affordable coverage.
How Insurance Companies Detect Lies
Insurance companies have sophisticated fraud detection systems. Some things they look for include:
- Inconsistencies in claims history
- Suspicious timing of accidents or damage
- Pre-existing damage claimed as new
- Policy changes right before a claim
- Unusual policy activity
They also have access to databases and public records to verify details from drivers licenses to VIN numbers.
Honesty is the Best Policy
While it can be tempting to exaggerate or lie to get better rates or higher claim payouts, honesty is always the best policy when dealing with insurance companies. Insurance fraud is a crime that carries serious penalties, beyond just getting your claim denied.
If money is tight, have a conversation with your insurance agent about available discounts you may qualify for. And if repairs cost more than you expected, provide all documentation you can about the damage and costs. Your adjuster may be able to cover more than you thought.
Whenever you’re interacting with your insurer, focus on being as accurate and truthful as possible. It can help avoid issues, and keeps you on the right side of the law!