Insurance rates are rising, and frustrated consumers are wondering why. Rightfully so, a long history of clean driving and devout loyalty to their insurance provider and your rates should go down. So, what gives?
Insurance fraud costs the industry $1 billion a year, though some estimate more. The problem is the billion dollars of fraud trickles down to us consumers and represents 15% of our insurance premiums. We’re quick to point at hard fraud, fraud with intention, like collusion between tow trucks and mechanics, falsely increasing repair bills. There’s also the scammers staging fake collisions and taking advantage of us “honest” consumers.
But, we’re also to blame. It’s wrong to think the insurance version of a little white lie never hurt anyone. This soft fraud arises out of opportunity. When you claim your injuries are worse than they are, or when you claim you lost expensive art, when they were cheap prints. Taking advantage of these situations may benefit you in the short term, but over time will cost everyone’s bottom line, and likely denied claims and loss of coverage.
Lying about your address on your car insurance
Yes, your postal code affects your car insurance quotes, so, in an effort to get cheaper rates, you decide to “game the system” and no one is hurt. You tweak your online form and change your postal code to where your parents live.
I compared Toronto car insurance against Oakville car insurance using Ratehub.ca’s car insurance quoting engine. The postal code difference was a whopping $588 per year. I compared the same car and the same driver; the only factor I changed was the postal code. In a bustling Toronto neighbourhood, I’m paying $168 per month. In contrast, in a suburban tree-lined street in Oakville, I’d be paying $119 per month.
It’s tantalizing to lie and save money. The ramifications of doing so could cost you way more than $600, including the voiding of your policy or denial of a claim. Furthermore your current car insurance company can legally refuse to insure you moving forward.
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What if I lie about renting out my house?
Renting out your basement is a smart financial investment. It brings in extra income, but you can also use it to write off a portion of your mortgage interest, property taxes, and home insurance.
A small update to your home insurance policy is a smart idea. I looked at the numbers using Ratehub.ca’s home insurance quoter and adding another family to my house cost me about 10% more annually. Not too shabby. Keep in mind that if you don’t inform your provider the consequences far outway the potential benefits.
What if you decide to Airbnb your home? You may think you’re covered by Airbnb’s host protection coverage. Unfortunately this coverage is quite limited, so much so that Airbnb has developed a notorious reputation for denying claims. In fact a website, Airbnbhell, popped up to retell some “unedited” stories.
So you turn to your own insurer, right? Did you tell them that you were renting out your space? If not, they could outright deny your coverage, cancel your insurance, and stop covering you altogether. To complicate matters more, there are actually only a limited number of companies willing to offer home insurance coverage for Airbnbers. It’s quite possible you may need to switch providers if you want to join the short-term rental market.
Read our blog,“Airbnb and home insurance”
Lying to your insurance company about driving for Uber or Lyft
Aviva and Intact provide protection for Uber and Lyft drivers. This coverage is actually offered through Uber and Lyft to all of their drivers, but it’s not ok to only rely on Uber or Lyft’s insurance. In fact, Uber requires you to have your own insurance before they are willing to cover you at all. Think of their coverage as an addition to your own policy that protects you on the job.
So, once again always inform your insurer of your intention first, especially since it’s likely your private insurer doesn’t want you driving around for commercial purposes. If your current provider is not comfortable with your desire to enter the shared economy, you may want to consider switching car insurance providers.
When you’re getting auto insurance quotes, and they ask, “Are you driving for business purposes?” and you say, “No.” Well, whether it was honest at the time or you didn’t know you couldn’t do that, it’s still insurance fraud and represents a major risk.
If you get in an accident while driving a passenger, and the passenger gets injured, for one, your insurer will deny your claim. So, you turn to Uber, but they also deny your claim because you don’t have the right insurance, and you told them you did when you logged into the app.
In a Financial Post article, an Uber driver carrying a passenger was T-boned, and both he and his passenger were sent to the hospital. His insurance denied his claim. In this case, the driver is left to pay for the extensive medical bills, loss of income, physiotherapy, and all associated legal bills
All because of a little white lie (well, Uber told him he’d be fine because they had him covered, not so).
Read our blog,“Uber car insurance”
Making an exaggerated claim on your home insurance
When your basement flooded from a sewer backup, the flood insurance endorsement on your policy helped to repair your finished basement. It also replaced your 60″ TV, your collection of vintage wines, and that heirloom pearl necklace. But wait, you don’t own any of that stuff, but it doesn’t matter, you’ve always wanted that stuff, you’ve paid for this coverage, why not make a claim and finally get it, right?
An exaggerated home insurance claim is a crime. The Insurance Bureau of Canada puts it best, “If an insurance adjuster suspects that even a portion of claim is exaggerated, payment for the entire claim – even the valid losses – could be put in jeopardy. Individuals who have fraudulent claims turned down may have difficulty obtaining insurance in the future. Because inflating or exaggerating a claim is a crime, insurance companies may contact the police to press charges.“
After you file a claim, there’s no claim payout, difficulty getting insurance, and police knocking on your door? Just so you could get a new TV? It’s not worth it.
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Lying on an insurance application about winter tires
In Quebec, it’s the law to have winter tires on your car. Elsewhere in Canada, having winter tires is optional and could save you 3-5% on your car insurance premiums. In Ontario, the government requires auto insurers to give out discounts.
Interestingly, when Intact insurance started handing out those discounts, they had worse loss ratios, according to Canadian Underwriter. They called around and asked, and as it turns out, drivers that said they had winter tires weren’t installing them. The white lies are real.
Should you be in a collision, which could’ve been prevented with the grip of a winter tire, your claim could be denied. The insurer typically won’t check, they expect you to be honest, but when it comes time to payout, they’ll investigate. Cheating the system could label you a high risk driver and getting insurance coverage will be more difficult.
While buying winter tires for $800 to $1200 seems like a false economy if you only save 5% (maybe $50-$100), know that the vast majority of collisions in winter are from a lack of winter tires. It’s not about the 5%, it’s about the cost of the potential damage to your car.
Read our blog,“Are winter tires worth it?”
Putting your car insurance under your parents’ name
Student car insurance is typically pricey due to the statistics around young drivers taking higher risks. Knowing you have fantastic parents, you ask for help. Your parents add you to their policy as an occasional driver, knowing full well you drive the car while attending a university that is a 2-hour drive away.
I did a quick check using the same car in each situation, and the savings are tremendous. If your parents add you to their policy, it could add between 30-50% to their policy. If you have your own policy, it could cost double what your parents fork out on their own. The savings may be huge, but it’s not worth the risk of scrambling to find car insurance after a denied claim.
Remember, if you’re from a major city, but currently living in a university town, make sure to put your correct address when shopping for quotes. You could save hundreds.
Honesty is the best (insurance) policy
Of course you can lie on your insurance application. It’s easy to lie about that speeding ticket you got. It’s also easy for an insurance company to see the ticket once all the underwriting reports and prior insurance is checked. Then your car insurance costs rise, you go to find cheaper insurance elsewhere, and get charged a cancellation fee. Now, you’re driving without insurance.
Honesty gives you the real rate, a smooth claims experience, and one less aggravating experience.
The Bottom Line
Don’t complain about insurance companies ripping you off or taking advantage of you, start by telling the truth. Ask your friends and family to do the same. Lying to your insurance company raises rates for everyone. In fact, lying can have many farther-reaching complications, including denied claims, insurance cancellation, police action, and, of course, higher rates.
You can report insurance fraud through your local police, your provincial/territorial Crime Stoppers organization, or by filling out the Insurance Bureau of Canada’sonline tip form or calling their anonymous hotline: 1-877-IBC-TIPS (422-8477).