Skip to main content
Ratehub logo
Ratehub logo

What happens if you lie to your home insurer?

When it comes to insurance fraud, Canadians claim to be trustworthy, but 15 cents out of every dollar paid in premiums goes toward covering fraudulent claims, according to Allstate Canada, costing the industry an estimated $1 billion a year.

Fraud spans across all sectors, including auto, life, injury, employment, and home insurance, the latter of which we’ll discuss here. Insurance companies are working harder than ever to crack down on fraud, so before you omit key details about your home or exaggerate a loss, consider the cost of lying.

What happens if you lie to an insurance company?

If you’re caught, your claim will be denied, your policy will be voided, and you can even be prosecuted criminally for fraud.

  • Claim denial

For example, if you file a claim to your home insurance provider after a flood for a big screen TV, but you never owned a big screen TV. Should you not have proof, they can deny your claim, even for the stuff you do own.

  • Voided policy

If they catch you in the act, your insurer can void your policy all together. Not only does this mean a denial of claim, it also means you have to find new house insurance. If word gets around that you lied, it will be increasingly difficult to find new coverage. You could be at risk of requiring high-risk coverage, which comes at a higher price.

  • Criminal prosecution

According to the Criminal Code of Canada, there are 3 tiers of fraud and the resulting prosecution. Know that there are soft and hard versions of fraud and these are extreme cases, but still worth noting.

  • Fraud under $5,000 carries a maximum sentence of two years in jail.
  • Over $5,000 earns the convicted party a maximum of 14 years in jail.
  • Committing fraud over $1 million carries a minimum sentence of 2 years in prison.

Are you looking for the best home insurance rate?

In less than 5 minutes, you can compare multiple home insurance quotes from Canada's top providers for free. Comparing rates online could save you hundreds of dollars.

Lying when you apply for coverage

Fraud doesn’t just apply to the claims process. Take a look at the “statutory conditions” section of your homeowners’ insurance policy, which sets out the terms of your relationship with your insurance provider. It clearly states that any “misrepresentations, omissions, or concealment” of information related to the policy is grounds for voiding it. This includes all the information contained in your application.

Reasons for lying on an insurance application may be to increase your likelihood of approval, or hoping to pay a cheaper home insurance premium.

One outright lie would be saying you don’t have a wood-burning stove, when you do, in an attempt to save on your premium. But, if your application is approved, your lies will likely catch up with you.

Let’s say a lightning strike sparks an electrical fire and causes damage to your home, including the room that houses the clandestine wood-burning stove. Even though the stove had nothing to do with the fire, you could be denied coverage once your insurance provider discovers it and finds out you lied about its existence.

Read our blog,“How a wood burning stove affects your home insurance”

Exaggerating home insurance claims  

In the insurance industry, fraud is classified into two categories. “Hard” fraud is the deliberate planning, execution, or invention or losses in order to receive payment. This can include intentionally damaging your home or personal property, staging a phony break-in, or lying about the extent or cause of the damage. Arson, for example, is one of the most common types of hard fraud.

Opportunistic or “soft” fraud is exaggerating the amount of loss from a legitimate claim. For example, your insurer is replacing your flooring and your couches, but you want a new home theatre system, so you tac it on the flood insurance claim. You were never the owner of a home theatre system, but being opportunistic, you take the chance.

If your provider thinks there’s something fishy about your claim, they’ll ask you for documentation to back it up. When the insurance adjuster comes to your home, they’ll want proof. Because sometimes, due to mold build up, you may have “thrown out” the destroyed good already, insurers recommend keeping receipts or credit card bills as proof of purchase.

Material changes to your home should be reflected in your policy

This is more of a lie of omission, but it’s a misrepresentation nonetheless. A material change is a substantial change to your home that increases the risk involved to insure your property. If you add an addition to your home, install a swimming pool, start an at-home daycare, or upgrade your electrical wiring, you need to inform your insurer. Even if you think the work is minor, failing to do so leaves you vulnerable to voiding your coverage.

In fact, it can be to your detriment. Your recent renovation may have increased the value to your home. If your home is burned to the ground, and you haven’t updated your insurance policy, you’ll only be covered for the former value of your home. The old value could be substantially less than before you finished your basement or added a third story.

Read our blog,“do you need home insurance for a renovation?”

Honest mistakes

Mistakenly answering a question wrong or forgetting to include certain information doesn’t necessarily constitute fraud if it’s not malicious, premeditated, or intentional. But, it will cause problems if you try to claim a loss.

The best defence against making an honest mistake on your insurance application is to answer questions fully and truthfully.  Take the time to review your application carefully before submitting it. If you’re unsure about how to answer a question during the application process, clarify with your insurance agent or broker. Honesty is the best policy.

The Bottom Line

Are you thinking of fraud on a claim or to get cheaper rates? Don’t do it. There are serious consequences. If you want to pay less, why not compare home insurance quotes with us?

Are you looking for the best home insurance rate?

In less than 5 minutes, you can compare multiple home insurance quotes from Canada's top providers for free. Comparing rates online could save you hundreds of dollars.

You can report insurance fraud through your local police, your provincial/territorial Crime Stoppers organization, or by filling out the Insurance Bureau of Canada’s online tip form or calling their anonymous hotline: 1-877-IBC-TIPS (422-8477).

Also read: