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What Is Breach of Utmost Good Faith?

Man pointing at himself while lying

By McKenzy Bowers | April 10, 2019

When it comes to buying life insurance, honesty is the best policy. A “breach of utmost good faith” to your carrier can have catastrophic consequences to your coverage. To find out more, read on.

Insurance, like most contracts between consumers and a business, is built on trust. A common law principle, “utmost good faith,” is a term used to indicate that every person who enters into a contract with an insurance company has a legal obligation to be honest and accurate in the information given. In addition, the insurance company must also be honest in its dealing with the insured.

What is Breach of Utmost Good Faith?

Conversely, a “breach of utmost good faith,” is coined when this trust is broken.  If you, for example, don’t tell your life insurance provider that you used to smoke, then that is a breach of utmost good faith.

It is possible for you to commit a breach of utmost good faith without knowing it.  For example, if a family member died of heart disease and you didn’t mention this when asked by your health insurance provider because you weren’t aware of that fact, this is an innocent breach of faith.  If you were aware of the fact and didn’t fill out forms truthfully, of course, you would be guilty of fraudulent non-disclosure or breach of faith.

What happens if an insurer discovers a non-disclosed fact or a breach of good faith?  First, your insurance policy is null and void. Your provider is no longer obligated to cover you. If the new information is discovered at the same time a claim is made, you may not receive payment of the claim. Depending upon the new information that came to light, your insurance provider may keep you on but charge higher rates or ignore the incident.

Take 2 and learn more from our Founder and CEO, Byron Udell:

The bottom line is, don’t lie. Smart, experienced agents understand life insurance products and which carriers offer what – even if you have some health hurdles.

If you need still need help determining how much coverage you’ll need, take our nifty calculator for a spin. It’s easy!

Nifty Life Insurance Calculator

Our Life Insurance Calculator can help give you a rough idea of how much coverage you’ll need to make sure your family is financially protected when you die.

  • Annual income before tax: $

    Annual income is an important factor in determining your needs, but it’s not the only one. When you die, your life insurance is like your final paycheck.

  • % of income needed by dependents:  %

    Because you’ll be gone, presumably they won’t need as much as you’re currently earning.  Typically, 80% of your current income is a good place to start.

  • Your Age: years

    The younger you are, the more years of your income your family stands to lose when you die.

  • Number of years benefits are needed:  

    If you died tomorrow, how many years of income do you want to provide for your family?

  • Annual inflation rate (estimate):  %

    Because of inflation, in order to maintain your family’s current standard of living, you’ll need to plan for increases in their annual income to keep pace.  Historically, inflation has averaged between 2% and 4%.

  • Annual interest rate (estimate):  %

    This is an assumption as to how much you believe your spouse will be able to earn on the death benefit proceeds. We have found that most surviving spouses are usually very conservative in how they invest the death benefit. The most common thing we see is that the money gets deposited into a bank account. You know your spouse better than anyone. Pick a number that you feel your spouse will be able to comfortably earn on the proceeds.

  • Based on the information you provided, you need about

    of life insurance to replace your income for the next years.

So what’s next? Call us at 800-442-9899 and let’s chat about the types of coverage that may make the most sense for you.

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