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The widow of a man who was shot and killed in a violent incident recently called into a radio station to say that the insurer, Old Mutual, was refusing to pay out the death benefit because her husband had not disclosed that he was diabetic.
Old Mutual subsequently paid the claim, but this case highlights the importance of knowing your rights when it comes to policy payments.
An insurer has a duty to ensure that people’s premiums are not inflated by the cost of paying for the pre-existing conditions of those customers who did not disclose – or misrepresented – their conditions at the time of applying for the policy.
Henk Meintjes, the head of risk product development at Liberty, explains that, in a case where a client does not disclose information, they will reconstruct the underwriting decision to see if the claim is still valid.
This means that they will consider all the information as though it had been provided at the inception of the policy and base the underwriting decision on the new information, and on the practices applicable at that time.
“Depending on the outcome, your cover may be reinstated on different terms or, at worst, declined,” says Meintjes.
The cause of the claim need not be related to the pre-existing condition. For example, if someone does not disclose their heart condition and then claims for cancer treatment, the insurer has the right to reconstruct the policy as a whole.
Assuming that cover would have been granted, but with a premium loading, the client would need to accept the revised terms and the cover amount would need to be reduced.
This would be based on how much cover the new premium, calculated based on the revised assessment, would have bought.
If the condition had no impact on the underwriting assessment, the full claim would be paid.
In a case where the condition is so severe that cover would have been declined, the claim would not be paid (irrespective of the cause) as the contract would not have existed.
In this case, the insurer would not pay the claim, but would refund the premiums, minus the administration fees.
“Withholding personal facts is not worth it. It’s simply not worth trying to save a few rands by being dishonest and putting your entire policy at risk,” says Meintjes.
4 things to know about Non-disclosure:
1. The most common areas of non-disclosure are related to medical conditions, occupation and financial standing;
2. Take time to think about the questions in the application form and provide all the relevant information;
3. Check your policy documents once they have been issued because these have a summary of the disclosures. Go back to your adviser or insurer if there are errors or omissions; and
4. Regularly review your cover to make sure it remains in line with your needs and for income protection benefits, which can be supported by financial evidence.
