What happens when an insured does not disclose important information at the point of applying for insurance?

When an insured fails to disclose important information during the application process for insurance, the insurer may have grounds to void the contract. This principle is based on the legal doctrine of ‘utmost good faith’ (uberrima fides), which requires both parties in an insurance contract to act honestly and disclose all material facts that could affect the assessment of risk and the underwriting decision.

If an insured withholds crucial information—such as relevant health conditions when applying for health insurance or prior claims when applying for property insurance—the insurer may determine that they would not have agreed to provide coverage had they been aware of that information. As a result, the insurer can declare the contract void, meaning that the policy is treated as if it never existed, and no benefits will be paid out in the event of a claim. This reflects the importance of full and honest disclosure in maintaining the integrity of the insurance contract. The other choices do not accurately reflect this principle, as insurers cannot provide coverage if critical information is omitted, nor would an insured receive a premium discount as a result of nondisclosure, and there would definitely be impacts on the policy itself, rather than no impact.