The duty to take reasonable care when you apply

Which policies it covers

The duty applies to a consumer insurance contract. Section 11AB says a contract is one if the insurance is obtained wholly or predominantly for the personal, domestic or household purposes of the insured, or if it is new business and the insurer gives the insured a written notice, before the contract is entered into, stating that it is a consumer insurance contract. If anyone disputes whether a contract is one, it is presumed to be unless the contrary is shown. Contracts that are not consumer contracts are governed by a different duty, the duty of disclosure in section 21.

What section 20B says

The section is short enough to read whole. Its six subsections are set out here with a plain-language note beside each.

1. “Subject to this Act, an insured has a duty to take reasonable care not to make a misrepresentation to the insurer before the relevant contract of insurance is entered into.”

   The duty is about not giving the insurer a wrong picture, and it applies up to the moment the contract is entered into.

2. Whether reasonable care was taken “is to be determined with regard to all the relevant circumstances.”

   There is no single test; context counts.

3. The circumstances that may be considered include the type of contract and its target market; the insurer’s explanatory material or publicity; “how clear, and how specific, any questions asked by the insurer of the insured were”; how clearly the insurer explained why answers matter and what could happen if they were wrong; whether an agent was acting for the insured; and whether the contract was new or being renewed, extended, varied or reinstated.

   The clarity of the insurer’s own questions and warnings is part of the test.

4. Particular characteristics or circumstances of the insured that the insurer knew of, or ought reasonably to have known of, are to be taken into account.

   What the insurer knew about you is part of the picture.

5. The insured is not taken to have made a misrepresentation merely because they failed to answer a question, or gave an obviously incomplete or irrelevant answer.

   A blank or obviously incomplete answer is not, by itself, a misrepresentation.

6. “To avoid doubt, a misrepresentation made fraudulently is made in breach of the duty”.

   Deliberate dishonesty always breaches the duty.

Quoted from the Insurance Contracts Act 1984, section 20B, as compiled on the Federal Register of Legislation, read 7 October 2026.

What insurers ask about

Moneysmart says life insurers usually ask about your age and job, your medical history and family health history, smoking and lifestyle, and high-risk hobbies or sports. The answers help the insurer decide whether to insure you, what to charge and on what terms. Moneysmart also notes that if an insurer doesn’t ask about medical history, the policy may have more exclusions or narrower definitions. Its advice on the forms themselves is brief: answer honestly, because if you leave out important details, the insurer may change or cancel your cover or refuse a claim.

If a misrepresentation comes to light

For life insurance, section 29 sets out what an insurer may do when there has been a “relevant failure”, which for a consumer contract means a misrepresentation made in breach of the duty (section 27AA). The section works as a sequence of questions.

1. Would the insurer have entered the contract anyway? If it would have, or if the failure was only about date of birth, section 29 does not apply. Misstated ages are dealt with in section 30.
2. Was it fraudulent? If so, the insurer may avoid the contract.
3. If not fraudulent, would the insurer have refused cover on any terms? Then it may avoid the contract, but only within 3 years after the contract was entered into.
4. If it has not avoided the contract, the insurer may instead vary it. The insurer may give written notice reducing the sum insured to no less than a figure worked out by a formula in section 29(4), which compares the premiums charged with the premiums it would likely have charged. For a policy that covers death, or has a surrender value, that variation is available only within 3 years after the contract was entered into (section 29(10)). For other life policies, the insurer may instead vary the terms to put itself where it would have been without the failure, judged against what other reasonable and prudent insurers would have done (sections 29(6) to (8)). A variation takes effect from the time the contract was entered into (section 29(9)).

Even after a contract is avoided for fraud, section 31 lets a court disregard the avoidance if it would be harsh and unfair not to, where the insurer was not prejudiced, or only minimally. The court must have regard to the need to deter fraud, and weighs how culpable the insured was against the loss they would suffer. It applies only to the loss in that case and does not reinstate the contract.

The same rules reach cover under a group life contract, the kind of scheme a super fund arranges for its members (section 32).

What this means at the application stage

Because the Act counts how clear and specific the insurer’s questions were (section 20B(3)(c)), and how clearly it explained why the answers matter (section 20B(3)(d)), the questions and warnings on the application form are part of how reasonable care is judged. So is whether the policy is new or being renewed, varied or reinstated (section 20B(3)(f)). Moneysmart’s own suggestion for the form itself is simply to answer honestly.

How the duty applies to a particular claim or a particular answer is a legal question. A lawyer can tell you how it applies to your situation; for the full text, read the Insurance Contracts Act 1984 on the Federal Register of Legislation.