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Little white lies could mean big insurance claim losses

It’s just a little white lie.

Why does it seem ok to tell little white lies?  What separates a little, white one from a big, black one?

Why does it seem ok to break some laws and not others?

Perhaps it seems more ok if the victim of the lie or cheat is the tax man or big business.  Failing to report “under the table” income may not seem so bad.  Downloading music from the internet doesn’t really hurt anyone directly.

Perhaps it seems more ok if your “loot” is small.  You’re only saving a few bucks here and there.  What harm can there be in that?

Then there’s a lack of consequences.  Perhaps a lack of consequences is what really drives little, white lies.  How could the tax man ever find out about that cash job?  No one is monitoring your computer for illegal downloads.

I am not trying to be a Sociologist.  I am not going to pass moral judgment.  This is a legal column.  This week, I am going to warn you about legal consequences when the big business victim of a little white lie is an insurance company.

The consequences can be severe.

We get insurance to cover us for things that we hope will never happen.  We have liability insurance to cover us in case we cause a car crash.  We have death and disability insurance to cover us or our families in case we are killed or disabled.  We have fire insurance to cover us in case our house burns down.

Insurance companies charge premiums based on the amount of risk involved.  A new driver pays more for liability insurance than a seasoned driver.  A smoker pays more for life insurance than a non-smoker.  A home owner with fire extinguishers pays less for fire insurance than one without.

Insurance companies determine the amount of the risk involved, and thereby arrive at the premiums they charge you, based largely on what you tell them.  You can significantly reduce the premiums you pay for insurance by not being perfectly honest with the insurance broker.

How many hundreds of dollars might you save every year by telling the insurance broker that your vehicle is not used for commuting to and from work and that your teenage son never drives it?  How much money might you save on life insurance if you lie about being a non-smoker?

They may seem like harmless, little white lies.  What’s the harm in a big insurance company losing a little money?  You’re going to quit smoking anyway.  They’ll never find out.

The truth of the matter is that you’re not saving yourself anything.  In fact, you’re just making an annual donation to the insurance company.

An insurance policy based on a lie, no matter how small and white, is not enforceable.

The law says that you owe the insurance company a duty of “utmost good faith”.  If you breach that duty, the insurance company does not have to honour the policy.

How’s that for a consequence?

There are no private investigators prowling around at the time you purchase the policy, or for the several years that you are “saving money” on premiums.  Just wait until there’s a million dollar loss, though.  If there’s a way the insurance company can get out of paying out on a claim, they’ll find it.

Do you have an insurance policy based on a little white lie?  Get into your insurance broker today and set the record straight.  If that’s too embarrassing, go to a different broker and get a new policy based on the absolute truth.  Stop donating money to an insurance company.  You don’t even get a tax receipt for it.

Published May 27, 2007 in the Kelowna Capital News

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