Your Duty to Take Reasonable Care Not to Make a Misrepresentation

The duty to take reasonable care not to make a misrepresentation.

Applying for life insurance

When you apply for a life insurance policy, the insurer conducts a process called underwriting. It’s how they decide whether they can cover you, and if so on what terms and for what premium.

The insurer will ask questions they need to know the answers to. These will be about your personal circumstances, such as your health and medical history, occupation, income, lifestyle, pastimes, and current and past insurance.

The information you provide in your application is vital to the insurer’s decision.

The duty to take reasonable care not to make a misrepresentation

When applying for insurance, there is a legal duty to take reasonable care not to make a misrepresentation to the insurer before the contract of insurance is entered into.

A misrepresentation may be made if you give a false answer, an answer that is only partially true, or an answer which does not fairly reflect the truth.

This duty also applies when extending or making changes to existing insurance, and in some cases when reinstating insurance.

If the duty is not met

If the duty is not met, this can have serious impacts on your insurance. Your cover could be avoided (treated as if it never existed), or its terms may be changed. This may also result in a claim being declined or a benefit being reduced.

Please note that there may be circumstances where the insurer later investigates whether the information given to them during your application was true. For example, the insurer might do this when a claim is made.

What can the insurer do if the duty is not met?

If you or the life insured do not take reasonable care not to make a misrepresentation, there are different remedies that may be available to the insurer. These are set out in the Insurance Contracts Act 1984 (Cth). These are intended to put the insurer in the position they would have been in, had the duty been met.

For example, the insurer may:

  • avoid the cover (treat it as if it never existed);
  • vary the amount of the cover; or
  • vary the terms of the cover.

Whether the insurer can exercise one of these remedies depends on a number of factors, including:

  • whether you or the life insured took reasonable care not to make a misrepresentation. This depends on all of the relevant circumstances;

  • what the insurer would have done if the duty had been met at the time the application was made – for example, whether they would have offered cover, and if so, on what terms
  • whether the misrepresentation was fraudulent; and
  • in some cases, how long it has been since the cover started.

If the insurer seeks to exercise any of these remedies, they will explain their concerns and let you know how to respond and provide further information, and what you can do if you disagree.

Policies to which the duty of disclosure applied

The duty to take reasonable care not to make a misrepresentation was introduced in 2021. Life insurance policies taken out prior to this duty being introduced were subject to a different duty, known as the duty of disclosure.

The duty of disclosure will continue to apply to those policies. However, if changes requiring underwriting are subsequently made to those policies, such as adding one or more new kinds of cover or increasing a benefit amount, then the duty to take reasonable care not to make a misrepresentation will apply to the policy, to the extent of the change.

Compare insurance from leading life insurers in Australia
Compare now