When applying for insurance, you’ll need to supply material facts to the insurer. But what are material facts? And why do you have to provide them? We’ll answer your key questions and more, so you can take out appropriate cover with confidence.
Material facts and their importance
In the context of UK commercial insurance, a material fact is considered relevant and significant information to the insurer when determining whether to provide coverage, and if so, on what terms.
Policyholders must disclose all material facts to their insurance provider when applying for coverage. Failing to do so could invalidate their policy.
For example, say a business owner applies for insurance for their office building but fails to disclose that the building has a history of significant flooding. The insurance provider would likely consider this a material fact that affects the building’s risk level. If the business owner later suffers flooding, the insurer may deny any claims on their policy if discovered that they failed to disclose this material fact.
What’s the difference between a material fact and answers on a proposal form?
There are all sorts of documents you may need to fill out when you apply for insurance cover – one of which is a proposal form. The answers you provide give the insurer a general overview of your business and risks.
On the other hand, a material fact is a specific piece of relevant and significant information to determine the level of cover.
In general, a proposal form includes questions about your business and insurance risks. Some of these questions may be considered material facts, while others may not. For example, a question about the policyholder’s business location isn’t typically a material fact, but a question about their history of claims is.
Both proposal forms and material facts are important. Policyholders should carefully read and answer all questions on a proposal form truthfully – any false or misleading information could invalidate their policy. It’s especially crucial to disclose all material facts to the insurer, as failing to do so could allow insurers to void the policy.
What happens if you don’t provide a material fact to an insurer?
Failing to disclose a material fact to an insurer when applying for coverage could have serious consequences.
Insurance policies are contracts based on the principle of ‘utmost good faith’, meaning that both the policyholder and the insurer have a duty to disclose all material facts to each other. If the policyholder doesn’t, the insurer may argue that the policy is void – in other words, it’s not legally valid. In such cases, the insurer has no obligation to pay out on any claims made under the policy, even if the policyholder has paid their premiums
Not only that, it could also lead to fraud allegations. If an insurer determines that a policyholder deliberately withheld or misrepresented a material fact, they may pursue legal action for fraud. This could result in criminal charges and significant financial penalties.
Ultimately, complete honesty and transparency are crucial when applying for insurance coverage.
If you’re not sure what defines a material fact and you need assistance taking out an insurance policy, we can help. Get in touch with our team to find out more.
Agencies - September 25, 2023
Blog - September 11, 2023