What may be the consequence for a policyholder who fails to disclose previous claims when applying for a new policy?

When a policyholder fails to disclose previous claims when applying for a new insurance policy, the most likely consequence is the potential denial of the new policy. Insurers rely on the information provided during the application process to assess the risk associated with insuring an individual. Previous claims history is a critical factor in this assessment because it indicates the likelihood of future claims.

If an applicant omits or misrepresents prior claims, the insurer may consider this a material misrepresentation or failure to disclose relevant facts. As a result, the insurer can choose to deny coverage altogether, showing a strong interest in accurate information to mitigate risk and establish fair premiums. This policy aligns with the principle of utmost good faith (uberrima fides) that governs insurance contracts, requiring both parties to act honestly and disclose all material facts.

Other options, such as increased coverage options or lower premium rates, do not accurately reflect typical insurer responses to undisclosed claims. Instead, these outcomes would generally require full disclosure and a favorable risk assessment based on that information. Thus, the potential denial of the new policy stands as the most significant consequence for failing to disclose previous claims.