One of the questions I have been asked frequently in the past, and sometimes in recent times is regarding someone overstating their income for a credit card or loan on the application.
What occurs is that the applicant overstates their income and gets approved for a loan or credit card. Then sometime in the future they may experience a financial problem and may find themselves in arrears with the account, and possibly facing bankruptcy.
Their question to me usually follows the form of “is this fraud” or “will I go to jail”.
Technically overstating your income is a fraudulent move, as to if you would face any penalty for it, probably not.
It is the lender or issuer of the credit card’s responsibility to follow “due diligence” in underwriting the application and approving or rejecting the application.
This is not to say it is OK to fudge the numbers, but it can be stated why did the lender not verify the income that was stated.
Needless to say it is always best to be truthful and honest as possible.
If you were to overstate your income, or make a false statement on a loan application, and in the underwriting process the lender uncovers this “lie”, not only could they reject your loan, but it can have further implications later on.
The same holds true when you apply for an insurance policy. You need to be 100% truthful in answering the question on the application.
There are a few areas that some people like to “fib” on when they apply for insurance:
* Car insurance: Not stating exactly where the car will be parked when not in use, and also using a different address for the policy. The policy premiums may be cheaper using a different address. This is a form of fraud.
* Travel insurance: If you do not disclose any pre-existing medical conditions, and then need to place a claim against a travel insurance policy, the claim could be rejected.
* Life and/or health insurance: The one area I saw when I sold insurance was someone who clearly smoked, declaring they were a non-smoker in order to receive lower premiums. Needless to say I would advise them I could tell they have and do smoke, and also advised them to disclose this fact. If not, the application could be rejected at best, and a claim rejected at worse.
Supreme Court Ruling May Allow “Collateral Lies” In Insurance Claims
Having sold insurance in a past life, one of the things that insurers are sticklers about is the truth. The truth in in any questions being asked prior to issuing a policy, and also the truth about what caused a claim to be placed against a policy.
In most instances, any untruths or omissions of information or details, in both instances, becomes grounds to either reject issuing an insurance policy, or reject a claim against an insurance policy.
A new Supreme Court decision may change this as the court has stated some “lies” are OK and will not “invalidate your insurance claim”.
What kind of lies are these, what they term as “collateral lies”, lies or omissions that do not “affect the root of the claim”.
These collateral lies or errors may be done deliberately or unintentionally, but regardless, do not affect the core or root reason for the insurance claim.
The example used in the courts was of a cargo ship that began to flood which sounded an alarm. The crew did not respond to the alarm and stated they did not respond due to the weather.
They lied that the weather stopped them, and the claim was rejected. However, the Supreme Court stated that this “lie” didn’t affect the “root” of the claim, that the weather had caused damage.
This may be a game changer as it could mean that little white lies told on insurance claims and on insurance applications, can no longer mean a claim is rejected.
The Consumer Affairs Expert for MoneySuperMarket, Kevin Pratt stated, “Today’s landmark judgment by the Supreme Court in the case of Versloot Dredging v HDI Gerling overturns centuries of insurance practice – and is great news for honest insurance customers.”
Of course this not give us the right to just lie on insurance forms and claims, but it does give us more recourse should we forget to tell something, or fail to do something that in the past would cause a claim to be rejected, as long as this would not impact the root cause of the claim.
Pratt adds, “It’s NOT a cheat’s charter, and it’s NOT a blank cheque for would-be fraudsters. But it does mean that insurers will NOT be able to throw out perfectly valid claims on little more than a technicality.”
“It will still be a fraud if you fabricate a claim, and it will still be a fraud if you exaggerate a claim. But insurers can no longer use so-called ‘collateral lies’ to reject a valid claim.”
An example given by MoneySuperMarket was this:
The example is a stolen car in which you had a £1,000 sound system installed. And you cannot find the original receipt for the system and the installation.
So you print out a made-up receipt off your computer as evidence of the cost of the system.
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Is this something you should do, no, but how many of us keep the original receipts these days.
The “fake” receipt doesn’t change the fact your car was stolen with the sound system inside, and that the sound system was covered under the insurance policy.
James Walker from Resolver, a complaints service stated, “This judgement proves you need to stick to your guns when making a claim, because it’s a clear message from the Supreme Court that insurers must consider claims fairly.”
Is this a shake-up in the insurance industry, yes, they need to fully understand the implications of this ruling as it could change the way claims are processed.
The ABI/Association of British Insurers Malcolm Tarling said, “The industry will study this judgment carefully. Insurers are in the business of paying all genuine claims, and have a duty to their honest customers to investigate suspected fraudulent claims.”
“No insurer will decline any claim on the grounds of fraud unless they believe they have good grounds to do so. But as this judgement makes clear, inflating the value of an otherwise genuine claim still remains fraud. Anyone in any doubt if information is relevant to their claim should always play safe and tell their insurer.”
What could occur from this ruling is a rebound effect, meaning insurers may need to increase premiums to offset the increased claims being paid out.
Kevin Pratt from MoneySuperMarket stated, “The one worry is that, if insurers are paying more claims as a result of this ruling, then they will increase premiums. That will make it more important than ever for people to shop around every time their car, home or travel policy comes up for renewal, to ensure they get the best price.”
The Director of General Insurance Policy at the ABI, James Dalton said, “The industry will study this judgment carefully. Insurers are in the business of paying all genuine claims, and have a duty to their honest customers to investigate suspected fraudulent claims. No insurer will decline any claim on the grounds of fraud unless they believe they have good grounds to do so. But as this judgment makes clear, inflating the value of an otherwise genuine claim still remains fraud. Anyone in any doubt if information is relevant to their claim should always play safe and tell their insurer.”
“Today’s Supreme Court decision could be a blow for honest customers. Allowing “collateral lies” in the course of an insurance claim flies in the face of the work that the insurance industry and Government have been doing to crack down on the cheats and fraudsters.”
“This decision risks pushing up the cost of insurance and prolonging the pay-out process for the vast majority of people who are honest customers. As the dissenting judge, Lord Mance said, allowing lies will ‘distort the claims process by the time and cost involved in unveiling the fraud and attempting to ascertain its true implications’.”
“Lies are lies. Insurers will investigate all suspicious claims and we make no apology for doing so as it keeps premiums down for honest customers.”
This article by Jon Emge was syndicated by the Personal Finance Syndication Network.
