Simply put, if you lie on your life insurance application it will certainly be uprated (i.e. come back more expensive than quoted) and could be denied altogether.
Life insurance underwriters have several resources at their disposal to verify if the information you provide on your application is accurate. For example, many life insurance policies will require physicals with blood and/or urine samples for policies with a face value over a certain amount. If you say you’re a non-smoker, but the tests come back positive for nicotine – even in trace amounts – you’ll be given the higher smoker rates anyway. At best, you might be allowed to try the physical again after a certain period of time, usually at least a year.
As part of the underwriting process life insurance companies may require a phone interview with the applicant which asks similar (if not the same) health questions found on the application. If there are discrepancies between the results, that will also send up red flags. Underwriters may also consult the applicant’s physician if contact information is provided and permission given. They may also ask the agent to follow up with the applicant on issues they’re unclear on, such as the exact purpose of any prescription medications listed on the application.
Also, life insurance companies refer to a central database called the Medical Information Bureau, or MIB (no relation to the Will Smith movies). When you apply for life insurance, whatever health information you provide may be forwarded to the MIB. For example, if you applied for life insurance with Company A five years ago and told them you had diabetes, but declined to disclose that to Company B on an application you submitted last week, Company B may very well find out about your diabetes from the MIB. Remember the MIB collects information from life insurance companies only; they don’t have access to your medical records.
Sometimes life insurance underwriting will discover health issues the proposed insured genuinely wasn’t aware of. If that’s the case, and assuming the condition doesn’t make the applicant uninsurable, the policy may still be issued on a rated basis. But if the company suspects the applicant intentionally lied, they have the right to deny the application on the grounds of misrepresentation. So, when you fill out that life insurance application make sure you’re as honest and forthright as possible.