What Is Material Fact And Why Is It So Important?
The Fact of the matter
The insurance business is full of words that seem like jargon, but the fact of the matter is that the words used often mean very precise things because these insurance policies are contracts. “Material Fact” is one expression that you are likely to come across. 
A Cottage in the country
Picture your ideal cottage in the country. There it sits with roses round the door, a wide, flat, green, neatly trimmed front lawn surrounded by flower beds of spectacular colour. I bet the image in your head is of a white-washed cottage, maybe even with a Tudor timber frame and with small windows buried under a deeply thatched roof.
The sun’s shining, isn’t it? The birds are tweeting and it’s lovely. If you go inside that cottage you will find a little old lady just like your granny and she’s filling in her buildings insurance form. Well done Gran!
But as Granny pops the completed form in the post box just outside her wooden garden gate, there is a problem. Granny hasn’t mentioned that she has a thatched roof.
Some time later Granny’s house goes up in flames, probably one of those spluttering coals leapt out of her open fireplace in her living room. Nobody was hurt, but most of the cottage is ruined. It’s an insurance claim, no doubt about it.
When the man comes round from the insurance company he finds out the cottage had a thatched roof and that it wasn’t included in the insurance particulars. That means, he informs granny, the insurance company won’t pay out…. at all.
Cover all the bases
That thatched roof was a material fact. The insurance company regards a thatched roof as an additional risk and so its inclusion or absence on the application form would affect the insurance premium. That, says the insurance company, is a breach of contract so they won’t pay out.
We know what you’re thinking: that won’t affect you! Well, let’s forget about granny, she got on to “Watch Dog” and the ferocious BBC team made the insurance company change their mind on that occasion, so that particular story has a happy ending. But let’s look at your insurance cover.
When you renew your house contents insurance each year, do you check the value of all your belongings? It’s surprising how much you can buy in just one year. Think of those computers, digital cameras, DVD recorders, televisions. It soon mounts up. If your contents cover has not increased in line with the real value of your contents and you have cause to claim on that policy, the insurance company may decide that you had withheld a material fact and they won’t pay you anything. Zilch.
Got a new motor
Let’s look now at your car insurance: have you bought a second hand car? Maybe it’s a family saloon, but the previous owner had decided he wasn’t ready for middle aged boredom so he jazzed it up with a set of alloys and put a discreet spoiler on the back. No, the alloys aren’t a problem, as you refused to pay for them in the purchase, so you ended up with the standard set; but what about that spoiler on the back? That’s a material fact. You remember in the insurance application it said “has the car been modified?” That spoiler is a modification.
The insurance company uses the fact that a spoiler has been added to imply that there may have been other modifications to the vehicle or as an indication of the type of driver you are. It will add maybe £25 to your insurance premiums over the year which isn’t a lot, whereas not declaring it may render your insurance completely void. That’s not worth the risk and that’s why honesty is the best policy.
More Information
- Material Fact: Information From Answers.com
- The Association Of British Insurers (ABI)
- Charities And Insurance
