Image: Speeding ticket © Corbis

Related topics: insurance, life insurance, policies, insurance rates, fraud

The price of your life insurance policy often depends on your answers to a range of application questions, plus the results of your life insurance medical exam.

Some applicants succumb to the temptation to lie on their applications, hoping their misrepresentations will sneak through the approval process and garner them lower rates. Here are some of the most frequent lies discovered by life insurance companies in screening applications.

"I don't use tobacco": The desire to get affordable life insurance drives many applicants to not only check the "nontobacco" boxes on their applications but also to abstain for several weeks before their medical exams so that nicotine -- or, more precisely, cotinine -- does not show up in their lab results.

"We probably see more of this than anything else," says Brian Ashe, a past chairman of the Life and Health Insurance Foundation for Education. And some applicants may lie unintentionally. Applicants who use nicotine in other forms, such as a nicotine patch or chewing tobacco, may not realize they are in the "tobacco" category.

"In their own minds they are not tobacco users, but in life insurers' eyes they are, in terms of disclosure," Ashe says.

If a life insurance company finds out a person lied about tobacco use after he dies of a related cause, there are two common outcomes: The company could alter the death benefit to be equal to the amount the person would have gotten had they paid tobacco rates, or the company could rescind the entire policy. An insurance company's range of remedies depends on state law. Ashe says a rescission is generally limited to within the first years of a policy, known as the contestability period.

Lynn Patterson, the chief underwriter for alternative and strategic distributions at ING, says: "It doesn't pay to lie on your application if the company would have insured you, but at a higher rate. For example, had I told the truth about tobacco I would have gotten the policy at a tobacco rate. If I die within the two-year contestability period (after lying about tobacco use), the company can deny the claim, and the family is not protected."

"I don't do drugs . . . and I'm bald": Many applicants try to mask illegal drug use. Even if blood and urine lab results come back clean, hints of drug use could pop up in a person's criminal history or medical records (everything from drug treatment to a casual mention of it to a physician).

If a life insurer suspects drug use, it could ask for a lock of hair, where evidence of drugs can reside for up to a year after use. "I have seen people who have been approached to get a lock of their hair go get their heads shaved," Ashe says.

Drug use doesn't necessarily knock you out of contention for a policy. Ashe says some insurers will issue policies to marijuana users (if they're not abusing the drug), but not at the best rates.

"I'm not depressed": Neglecting to mention depression is common, Patterson says. Depression can be impossible to detect by an agent or the paramedical examiner who performs the medical review. However, any medical diagnosis of depression will be apparent in your medical records.

"I've had only that one DUI": Lying about drunken driving convictions happens, but Patterson notes that lies about the second, third and fourth DUIs are most common.

"I've had just two moving violations": Applicants are also prone to misrepresenting the number of moving violations they have racked up.

"They may not admit to No. 3 and 4," Patterson observes.

But the truth about DUIs and moving violations is usually revealed when the insurance company pulls your motor vehicle record, or MVR. And if what you say about DUIs and moving violations does not match up with what's in your record, insurance underwriters will always give more credibility to the record if it contains more information than what was provided on the application.

A gross discrepancy will alert the underwriter to look for other possible material misrepresentations.

"When the client tells the truth and it matches on the MVR, we feel better that the whole risk is being portrayed to us," Patterson says.

"There's no cancer in my family": An applicant's own history of cancer -- along with cancer among immediate family members -- will result in a higher life insurance cost, increasing the temptation to fudge.

Any personal history of cancer is no doubt in your medical records, and so is a family history. You were likely asked about it when you first went to your doctor's office and your family medical history was recorded.

"I don't plan to travel anywhere dangerous": Ashe says the number of applicants who misrepresent their travel plans has increased, especially as more parts of the world become dangerous.

Sometimes applicants will "adjust" their plans, such as saying they'll be traveling in a dangerous land for only two weeks when in fact they plan to reside there for an extended period of time.

"I make $100,000 a year fixing cars": Some people will lie about their income in order to receive more coverage than they're eligible for, Patterson says. He recalls a California couple who recently claimed that the husband was a self-employed mechanic making $100,000 a year, with a net worth of $100,000, and that the wife was a self-employed housekeeper making $50,000 a year.

When the red flags go up on a case like that, insurers may pull a credit report or ask an applicant to fill out a financial supplement that details assets, liabilities and other information.

If misrepresentations or omissions are found by an insurer before the policy is issued, it will adjust your rate accordingly based on the truth. But an intentional lie will also cast doubt on the rest of your application, and that could compel the insurer to examine everything more closely and possibly delay its decision.

Lies discovered after a policy is issued can come back to bite an applicant. Any lie caught within a policy's two-year contestability period can cause the insurer to scale down the death benefit or even rescind the policy, depending on state law.

After the first two years, a policy is generally incontestable, except where there is a question about "insurable interest" -- meaning someone took out a policy on someone else without qualifying to do so. For example, a spouse or a business partner generally has "insurable interest" in your life because he or she depends on your production of income.

Ashe points out that a life insurance application becomes part of the legal document that is the policy. So lies within the application become fraud. Consumers "have to understand that when they sign an application, the application becomes part of the contract. You'll see your application in the policy. If they thought of it in those terms, they might be more careful of their statements," Ashe says.

Insurers may use any of the following to verify the information in your life insurance application:

  • Paramedical exams.
  • Data from MIB Group, which include records of previous life, health, disability income, long-term-care or critical-illness insurance applications you've filled out.
  • Motor vehicle reports.
  • Doctors' records.
  • Pharmaceutical database searches.
  • Credit reports.
  • Autopsy reports. The report is used to determine cause of death if the insurer suspects fraud on the original application.

Before you apply, you can get an idea of the coverage you need with MSN Money's life insurance estimator.

This article was reported by Amy Danise for Insure.com.