Insurance Non-Disclosure in NZ: What Actually Happens Next
Non-disclosure does not automatically void an insurance policy in New Zealand. When an insurer discovers that something was left off an application, it must first establish that the missing information was material, meaning it would have influenced the judgment of a prudent insurer in fixing the premium or in deciding whether to take the risk on substantially the same terms , the test in section 6 of the Insurance Law Reform Act 1977. It then works out what it would actually have done had it known, and that answer drives the outcome: pay in full, pay a reduced amount, impose the exclusion or loading it would have applied at the time, or avoid the policy from inception. For a life policy, section 4 of that same Act bars avoidance altogether unless the statement was substantially incorrect, material, and made either fraudulently or within the three years immediately before the attempted avoidance or the death of the life insured.
The duty you took on at application
Under current New Zealand law the duty sits with you, not with the insurer's question set. The application is the basis of the contract, and an insured must tell the insurer about material facts such as pre-existing conditions, medical advice, treatment, medication or symptoms, as the IFSO Scheme put it in a 2025 case involving undisclosed cardiology investigations. Answering the questions honestly is the floor, not the ceiling: the duty extends to information a prudent insurer would want, even where no question squarely asked for it.
Old, minor or long-resolved history still counts. One applicant argued the conditions she omitted were "old news"; the scheme found the non-disclosure was still material because the insurer would not have offered the same terms. Our guide to the underwriting process covers what insurers ask and why.
Innocent, careless and deliberate
The labels matter, but not in the way most people expect.
For life policies, the gate is section 4 of the Insurance Law Reform Act 1977: the policy cannot be avoided on a misstatement unless it was made fraudulently, or within the three years before avoidance or death. That Act defines a statement as made fraudulently if the person knew it was incorrect, had no belief in its correctness, or was reckless as to whether it was correct.
For contracts not embodied in a life policy , health cover and general insurance , section 5 of the same Act sets a shorter test: substantially incorrect and material, with no fraud requirement and no three-year window.
None of this obliges an insurer to part-pay where it is entitled to avoid. When one insurer offered a deceased woman's son a reduced settlement, the IFSO Scheme told him the insurer was not legally obliged to make that offer. Reduced settlements are usually a commercial choice, not a right.
How the "would it have changed the decision" test is run
Materiality is not the insurer's own opinion. The onus of proof sits with the insurer, and when a complaint reaches the IFSO Scheme the case manager tests it independently, presenting the anonymised facts to senior underwriters at other companies and asking what they would have done. In the cardiology case, both independent underwriters said they would have offered different terms or deferred cover, which settled the question. In an earlier income protection complaint, three independent underwriters said they would have sought more information and likely deferred the cover.
They are not asked whether they would have declined, but what they would have done , which is why the outcomes are broader than paid or not paid.
The insurer's four realistic options
Pay the claim in full. This happens when the omission was not material, when the insurer was already on notice, or when the claim is unrelated and the insurer chooses not to reopen the file.
Pay a reduced amount. Where the insurer would have written the cover but on worse terms, it may settle for the proportion the correct terms would have produced. In a trauma claim by a man diagnosed with stage 4 colon cancer, the insurer agreed to settle on the reduced cover that would have applied had an anaemia diagnosis been disclosed, and his widow received half the life benefit, $95,664.
Apply a retrospective loading or exclusion. An insurer can reconstruct the policy as it would have been issued. In one case the insurer cancelled the trauma cover from inception and applied a 75% loading to the life cover, refunding the trauma premiums. In another, the insurer applied 50% loadings to the life and trauma covers, removed a benefit provision and paid a reduced stroke claim.
Avoid the policy. Where the insurer would not have offered cover at all, it can treat the policy as though it never existed and decline to consider the claim. That is what happened where an applicant omitted a long list of past conditions across mental health, spine, bowel and liver history.
When non-disclosure does not stick
A few arguments genuinely work.
The first is waiver. If you told the insurer enough to put it on enquiry and it chose not to ask, the duty can be satisfied. One complaint was upheld because the applicant told his bank adviser about regular headaches and a recent MRI, which was enough to put the insurer on notice.
The second is imputed knowledge. Under section 10 of the Insurance Law Reform Act 1977, a salesperson or adviser involved in negotiating the contract is treated as the insurer's agent, so what they were told, the insurer is deemed to know.
The third is the circumstances of the applicant. The IFSO Scheme can weigh educational, cultural and personal circumstances, and it upheld a complaint where a Tongan-born customer answered "no" to a question about blood conditions she could not reasonably have understood, in a sale the bank controlled and the bank's employee completed.
What does not work is asking the insurer to check with your doctor. In the cardiology case the adviser did exactly that, and the scheme found the duty to disclose stayed with the applicant.
The IFSO dispute route
Complain to the insurer first. It has two months to resolve the complaint before the matter can move on, and the point at which you cannot agree is called deadlock. From there, the standard deadline to refer the complaint to the scheme is three months after deadlock, with a discretion to accept it up to nine months.
The scheme is free to consumers, and since 18 July 2024 it can investigate claims up to $500,000 plus GST, with special compensation of up to $10,000 plus GST for matters such as stress or loss of opportunity. Set expectations honestly: the scheme states only about 1 in 4 disputes it investigates end in a successful outcome for the consumer. It accepted a record 600 disputes in the year to 30 June 2025, 29% of them about health, life or disability cover. Our guide on a declined claim lists the paperwork to assemble first.
What changes in 2027
The Contracts of Insurance Act 2024 replaces the duty entirely. It comes into force no later than 15 November 2027, and for consumer policies it swaps the open-ended duty of disclosure for a duty to take reasonable care not to make a misrepresentation, putting the onus on insurers to ask clear, specific questions.
Remedies become explicitly proportionate. A misrepresentation is either deliberate or reckless, or it is neither, and the insurer must prove the former. If it is deliberate or reckless, the insurer may avoid the contract, refuse all claims and keep the premiums. If it is neither, the insurer is held to what it would have done: avoid and refund if it would not have written the risk at all, reissue on the terms it would have used, or pay only the proportion the premium charged bears to the premium it would have charged.
If you think you left something out
You do not have to wait for a claim. Ask your insurer for a copy of the application you signed and the underwriting notes on your file; under the Privacy Act 2020 an agency must respond to a request for your own personal information as soon as reasonably practicable and no later than 20 working days after receiving it, and the right of access is Information Privacy Principle 6. Request your GP notes at the same time, so you are comparing what you disclosed against what your records actually say.
If there is a gap, the process is to disclose it in writing and ask the insurer to reassess. An insurer told before a claim can only reprice or re-term the cover; an insurer told after a claim is weighing the same facts with money on the table. This is general information, not advice about your policy , if the gap is significant, or the cover is life, trauma or income protection a family depends on, talk it through with a licensed adviser before you write anything.
Next step
If you are unsure what your current policies say you disclosed, or whether the cover still fits, start a comparison and we will walk through your application history and your options with you. A comparison and a conversation, nothing more.
This article is general information only and is not personalised financial advice. It does not take your objectives, financial situation or needs into account. QuoteHub is a brand of Craig Smith Business Services Limited, a licensed Financial Advice Provider, FSP712931.
Read the full insurance guides
Compare your cover with a licensed NZ adviser · free, no obligation.
Explore related pages: Life Insurance, Income Protection, Health Insurance, Trauma Insurance, For Brokers.