Commentary: Jeremy Squier
An application for a life assurance contract requires absolute honesty and full disclosure of the applicant’s health, vocational, avocational and other endeavours. The life assurer uses available community and mortality statistics along with their re-assurers to set premium rates per age and gender of insured clients and will also use risk factors such as the nature of work done, the amount of time spent travelling, marital status, smoker or non-smoker status and a number of other factors to set the premium rate. Non-disclosure of known material facts could result in the incorrect pricing of individual policies which effectively means that the insurance pool is diluted and this is prejudicial to the other individuals in that pool as well as the Assurer and it’s re-assurers.
Why is this important?
There is current press coverage of the very sad story of a gentleman who was murdered in a hijacking which resulted in his family submitting a death claim to Momentum. Following processes required of them, Momentum discovered circumstances which indicated material non-disclosure of health disorders at the time of the application. They reassessed the original underwriting basis of the policy and concluded that the client would have been denied cover and they repudiated the claim. The widow referred the matter to the Ombudsman and their office ruled with Momentum on two occasions. Under intense Press and public scrutiny, Momentum have since paid out the claim and have included a clause in their life contracts which will guarantee payment of lifecover if the life assured died as a result of violent crime. They are paying this claim out of their corporate profits but no doubt a small but subtle pricing adjustment will be applied on all future policies to accommodate the increased risk they will be taking on.
The Press around such an occurrence tends to focus upon the emotional (a husband and father died of circumstances completely unrelated to his undisclosed material health impairment and his wife and young family are being financially impacted by the Assurers decision to repudiate the claim). The contractual facts indicate that a good corporate citizen such as Momentum Life probably looked for every reason to pay the claim, but on contractual grounds (full disclosure of the risks they were insuring) simply had to deny payment of the claim. Not doing so would have prejudiced all participants in the Momentum life assurance pool.
A Life Cover doesn’t benefit the life assured and if there is any contention after death, the life assured is not around to defend his or her legal disclosures. Life assurance is in essence a gift of giving to the nominated beneficiaries of the policy and there is no doubt that any applicant if asked whether they would like to chance repudiation after they have passed on, would not choose wilful non-disclosure over the certainty of a pay-out. Choosing to wilfully not disclose material facts to an Assurance company is actually lying and is akin to playing Russian Roulette with the future financial security of your beneficiaries. It is not a recommended practice.
Dr Maritha van der Walt, convenor of the Medical Underwriting Standing Committee of the Association for Savings and Investment South Africa (ASISA), cautions that (anything other than full and honest disclosure) is a very short-sighted approach likely to leave you or your family without cover when a devastating life event occurs.
The risk of non-disclosure
Van Der Walt explains that a life insurance company is fully within its rights to not pay out a claim and declare your policy void, should it come to light that you were dishonest or that you failed to disclose important details when you took out your policy.
However, life insurers assess all claims objectively and fairly and a decision to reject a claim or to void a policy is never taken lightly, says Van der Walt. “Problems at claim stage can be completely avoided with full disclosure of all the required information when you take out a policy.”
While South African life insurers paid 99.3% of all claims against fully underwritten life policies last year, half of the claims that were declined was due to non-disclosure. In terms of numbers, this meant that while 34 100 death claims were paid, 120 families did not receive death cover worth close to R160 million, because the policyholder did not disclose material information about a medical or lifestyle condition in an attempt to secure cover, or avoid loaded premiums.
Van der Walt says since it is generally accepted that the person applying for insurance knows more about the risk to be insured than the insurer, the law compels applicants to honestly disclose all information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums. Information generally regarded as material include medical history, state of health, family history, and life style.
Having all the facts at their disposal enables the life insurer’s underwriters to determine the exact risk relevant to each applicant. This is important, because it allows the life insurance company to adjust premiums for different risk categories, thereby ensuring that every person pays a fair premium without subsidising someone less healthy.
When in doubt, rather disclose
“If you are in doubt about whether information is important or not, rather disclose it and let the underwriters decide whether it is material ” advises Van der Walt.
Depending on the information that you disclose, a life insurer may request a medical assessment to determine the severity of a condition. If you mention that you suffer from chest pain, the insurer will require an assessment to determine whether you are at risk of suffering a heart attack. If you disclose that you are scheduled to go for any medical investigations within a couple of weeks, the company may delay issuing a policy until you have the results.
Van der Walt says if your medical condition or lifestyle choices are considered a material risk, the life insurer may offer the cover on different terms such as a higher premium or exclusions on disability cover or critical illness benefits. In a small percentage of cases, the applications are declined.
While it may therefore seem tempting to keep quiet about ailments or pending medical investigations, should you claim for a condition that was subsequently diagnosed as a result of the investigations, the claim might be declined. “Rather be honest and if your cover is declined then you and your loved ones can at least plan ahead for the financial impact should something happen.”
Van der Walt says that even if you do not qualify for comprehensive life cover, you can apply for accidental death cover, which only pays out if you die as a result of an accident.
She adds that there is also a growing range of products available to people living with the human immunodeficiency virus (HIV), which include life, disability and critical illness cover. South Africa was the first country to introduce life cover for people living with HIV in 2001.
When applying for a long-term insurance policy: