Life insurance is a critical financial tool for many families in the United States. As a recent Missouri case illustrates, the failure of an insured to give true answers on a life insurance application can result in a loss of the insurance policy when it comes time to collect the life insurance. In the case of Adams v. Stonebridge Life Insurance Company, the 8th Circuit Court of Appeals held that where a man who purchased life insurance policy gave false and misleading answers on application in response to questions regarding whether or not he had a pre-existing mental disorders, the company could rescind the policy. The court noted that the insurance company justifiably relied on the man's application answers and therefore the claim for benefits to the beneficiaries after the applicant's death was proper.
This underscores two important points. First, that the application is very important in the process of obtaining life insurance and will be relied upon by the insurance company in determining whether or not to insure a person, and the amount of premium that will be paid if the application is accepted. Second, while subject to certain statutory limitations, an insurance company generally has the right to rescind the policy when the application answers were falsely made by the applicant. Most states, including Missouri have a non-contestability clause, under which after a certain period of time has passed answers will no longer form the basis for rescission. However, as no one ever knows when they will die, it is important practice to only provide correction information when applying for life insurance, so that the benefit will actually be there when it is needed.