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What is concealment in insurance?

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Concealment insurance fraud can lead to unexpected trouble, both for the insured and the insurer. If you have gone through the trouble of obtaining a life insurance policy, it is worth making sure that you get to keep it. After all, what good is an insurance policy that takes in premiums but has no chance of making a payout? No one wants to end up paying for an insurance policy that they get prohibited from using. With that said, there are a few things that you can do, inadvertently or otherwise, that can cause your insurance company to cancel your policy.

Obviously, the policy will go inactive if you quit paying your premiums, but there are subtler mistakes that can threaten your insurance as well. If the insurance company finds out that you have committed concealment insurance fraud, they may cancel your policy. But what is concealment in insurance? 

Definition of concealment in insurance

Concealment in insurance is when the applicant or insured party hides or withholds relevant information from their insurer. This fraud may occur when filling out an application if the applicant conceals the requested information. Concealment may also occur after a policy is active if the insured individual conceals information that is officially requested at any point – while filing a claim, for instance.

Concealment is an act of insurance fraud and is treated accordingly. While it may be tempting to hide information that could raise your premiums, being upfront might save you money and prevent your policy from being canceled. When safeguarding against concealment, it is important to note that you may commit this fraud even on accident. If your insurer asks a question that you are unsure of the answer to, then tell them so and work with them to find the most accurate answer possible.

The reason that concealment is so relevant in insurance is that your insurer cannot make reasonable financial decisions about a client who hides pertinent information from them. Policy premiums and application acceptances are based upon complex calculations that use customer information to determine elements of risk. Incorrect or missing information throws these calculations off and imperils the insurer as a business entity.

Concealment during warranty

Policy warranties are a type of stated guarantee. These warranties serve as linchpins for the insurance policy. If the provided statements are false, then the plan may become invalidated. An example would be if someone takes out a term life insurance policy and says that they do not have a particular illness even though they do. In this situation, the insured will have violated the warranty and committed concealment. In short, policies depend on the validity of the warranty statements. If these are proven false, then it may invalidate the entire plan.

Affirmative warranties

There are two general types of policy warranty, affirmative and promissory. Affirmative warranties are statements that are true at the time of issuance. Committing concealment during an affirmative warranty invalidates the policy. An example of an affirmative warranty would be if your insurer, during the application process, asks if you have a family history of heart disease, and you say ‘no’ even though one of your parents had a heart attack. This would invalidate the policy, although that may not come to light for a while.

Promissory warranties

Promissory warranties are statements about the future, hinging on something either becoming true or remaining true. Committing concealment of a promissory warranty does not immediately invalidate the policy. Still, it does give the insurance company the right to cancel the policy. An example of a promissory warranty violation would be if you agree to inform your insurer if you ever develop a smoking habit, but neglect to do so when it happens. This would not immediately invalidate your policy, but it would give the insurer the right to cancel it or possibly turn down your claims.

Consequences of concealment

The primary consequences of concealment in insurance are the risk of having your policy canceled or of having a claim denied. Losing a plan or having a claim denied when you need it can be a disaster. Not to mention, the insurance company is unlikely to reimburse you for those past premiums, even if they cancel your policy or deny your claims. Therefore, even if it means slightly higher premiums, it is always best to be as honest as possible with your insurer. 

Imagine that you have had a life insurance policy for the last fifteen years, and you have paid all your premiums on time. You have a terminal illness, but treatment has gone well, and you were able to survive it for much longer than the doctors expected. When you got the diagnosis, though, you decided not to tell your life insurance company. When you die from the illness and your dependents file the life insurance claim, they will be denied the payout if the insurance company finds out how you died and that you withheld information about that terminal illness from them. This scenario highlights why committing concealment can be such a dangerous mistake.

The takeaway

  • Insurance concealment is anytime you withhold required information from your insurer.
  • Concealment in insurance is a type of insurance fraud.
  • Consequences may include having your policy canceled or your claims denied.
  • Be upfront and honest with your insurer to avoid committing concealment.

When you commit concealment on a life insurance policy, you place yourself in jeopardy. By concealing the required information, you run the risk of having your plan canceled or your claims denied when you need it the most. Even if it means costlier premiums, being honest with your insurer is the best way to keep your insurance ready for when you need it. To avoid committing concealment on accident, always be clear with your insurer about how well you understand their questions and how certain you are about your answers.

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