“Material facts” in the context of insurance, refer to any information that could influence the decision of an insurer to accept the risk of insuring an individual or entity, and on what terms. These facts are crucial to the underwriting process, as they directly impact the assessment of the risk involved and the calculation of premium rates. Material facts can include a wide range of information, such as the insured’s age, health condition, lifestyle habits (for example, smoking or alcohol consumption), occupation, financial status, and any other details that could affect the likelihood or cost of a claim.
Key aspects of material facts include:
Disclosure requirement
When applying for insurance, the applicant is required to disclose all material facts truthfully. Failure to do so, known as non-disclosure, can lead to the insurer voiding the policy, denying claims, or adjusting the terms of coverage. In Quebec, the Civil Code sets out this duty: you must disclose the facts you know that are likely to materially influence the insurer, but not facts the insurer knows or is presumed to know because they are widely known, unless the insurer asks about them.
Impact on policy validity
Accurate disclosure of material facts is essential for the validity of an insurance contract. Misrepresentation or omission of such facts can compromise the contract and the insurer’s obligation to pay out claims. Once a policy has been in force for two years, the insurer generally can’t void it for a misrepresentation unless there was fraud. For disability insurance, this protection doesn’t apply to a claim for a disability that began in the first two years.
Relevance to risk
Material facts are considered material because their disclosure is necessary for the insurer to accurately evaluate the risk they are undertaking. This evaluation influences not only whether the insurer will provide coverage but also how they price that coverage.