Material Fact Meaning

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Definition:

Material fact refers to the relevant and important fact that can form the basis of taking a decision. In life insurance, material facts influence the insurer’s decision of insuring a risk and issuing a policy. Non-disclosure of material facts can lead to cancellation of the policy.

Description:

Material facts are important information that one must not miss to reveal to the insurer as it can influence the insurance company’s decision of whether or not to issue the policy. These facts affect the judgement of a prudent insurance underwriter. Based on the principle of the ‘utmost good faith’ you should disclose all the material facts.

Material facts in insurance helps to determine the amount of coverage and the premium that should be charged. The information is crucial because it helps to identify the level of risk or class of insurance that the insurance company may be willing to offer.

Example:

Prateek was of 35 years but disclosed to the insurer that he is 30 years old. The premium band changes depending on the age for any type of life insurance policy. Premium is higher at a higher age. This is a material fact which Prateek should have disclosed to the insurer enabling them to compute the premium correctly.

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