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Category Life Insurance

The truth, the whole truth and nothing but the truth

10 October 2011 Altrisk
Craig Harding

Craig Harding

There is nothing quite like an insurance application form to force us to face our own health risks. This experience can be so uncomfortable that many of us avoid it for as long as possible, dreading the health and risk assessment. Added to the discomfort is the knowledge that the results of such an assessment will have an impact on our pockets, in the form of insurance premiums. Under these circumstances, it can be tempting to be less than completely truthful when submitting an application.

What many of us don’t realise, though, is that full and accurate disclosure is one of the most important factors in ensuring a smooth claims experience in the future. Leaving out information – even if it isn’t done on purpose – is one of the main reasons for claim rejection or for reduced settlement. So forgetting to mention one seemingly unimportant problem can have dire repercussions for you and your family.

“Whether intentional or not, non-disclosure of any condition that could affect the outcome of a risk assessment is considered misrepresentation,” explains Craig Harding, managing director of Altrisk.

To understand why full disclosure is so important, it’s necessary to take a step back and understand the role of underwriting. Underwriting is the process by which an insurer assesses an application for cover under a risk product such as life, critical illness, income protection or disability cover. If the application is accepted, underwriting will specify the terms on which the policy is issued.

One of the main sources of underwriting information is the application form that the applicant completes and submits. Generally, medical examinations and specialist reports are only requested if the application form indicates a potential risk.

“The application form is part of the contract with the insurer, in which the client accepts full responsibility for the information provided. Any non-disclosure, either through omission or the provision of false information, could invalidate your policy,” explains Harding.

If a client claims for a benefit as a result of a previously undisclosed risk factor, the benefit will either not be paid, or the settlement will be less than expected. This is based on the fact that the client was not correctly underwritten for the condition at the application stage.

It is also important to remember that disclosure applies during the life of a policy, as well as at the application phase. Your policy should indicate the types of change in risk you need to notify the insurer of. For example, a change in personal circumstances, such as occupation, could have an impact on the original risk assessment, the premiums charged and the terms and conditions of the final contract. This means that any significant changes in the policyholder’s risk profile should be communicated to the insurer. The insurer is then able to update their assessment, if necessary, and ensure that cover remains in place.

A common misperception is that clients need to update their insurer on changes to their health status after taking a policy. This should not be the case, as the insurer has committed to the terms of the policy for its duration, based on the health information provided at the time of application.

Dealing with non-disclosure

Non-disclosure is usually discovered during the claims assessment process. During the claim assessment, the assessor will review the application information as well as the claim information to identify whether the original information was complete and accurate. Based on this assessment, a decision will be made regarding any non-disclosure.

Most insurers base their treatment of non-disclosure on guidelines provided by the Ombudsman for Long-Term Insurance. Altrisk’s approach is consistent with these guidelines as described in the table below:

Information from time of application discovered at claim stage

Revised underwriting decision (which would have been made at the start of the policy) based on new information

Affect on cover

New information relevant to the claim

Decline cover

Policy cancelled; premiums returned after a deduction for expenses

New information relevant to the claim

Exclusion on claim condition

No benefit payable

New information not relevant to the claim

Exclusion on identified condition

Full sum assured is available for the claim

New information related/unrelated to the claim

Re-rate the benefit

Will result in a reduced sum assured

New information that is not significant to the underwriting decision

No change

No change; full benefit still available

In any assessment, consideration is given to whether a reasonable person would have supplied the omitted information at the application stage. If it is established that a reasonable person would have provided the information, the claim may be rejected.

“When it comes to disclosure, too much information is always better than too little. Provide information on every condition that you have sought treatment for and let the underwriter decide what is relevant, rather than run the risk of having your claim rejected.

While your visit to the chiropractor two years ago might not seem as important to you as the fact that you have a family history of diabetes, it all matters. If you are unsure of any aspect of the application requirements, speak to your financial advisor to make sure that you gain the full benefit of your cover,” concludes Harding.

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