Updated November 12th 2013

A couple of cases have come across my desk recently where life insurance policyholders have been left with an unsatisfactory outcome in terms of their insurance claim. Despite general market perception of insurance companies, neither of these outcomes were the fault of the life insurance company.

On reviewing the details of these cases, it was clear to me that both could have been avoided if they had received appropriate advice from a financial adviser.

A financial adviser will help you in the process of applying for insurance by:

  • Recommending Tax Effective ownership structures for your cover
  • Choosing the right combination of benefits and extra options
  • Ensuring that you have the right type of cover (Life, TPD, Trauma, and Income Protection) and the right level of cover, at affordable premium rates
  • Completing the application process with you to ensure that the right answers and disclosures are given
  • Liaising with the insurer during the underwriting process on your behalf to get the policy issued
  • Making sure that claims are paid and paid promptly

Case 1: Accidental Non-Disclosure

The life insured received an offer for insurance via mail. It was a simple process, all he had to do was tick ‘Yes’ or ‘No’ answers to a few questions, and the cover would be provided with no additional hassle. The life insured completed this quick form and sent it back to the insurer and the policy was issued.

Some years later, the life insured passed away of a sudden heart attack. Upon receiving a claim, all insurers will do a check of medical history (both Medicare and PBS records) before making payment. In this case, it turned out that the life insured had a cancerous tumour some years prior. He failed to mention this because the form was so simple and did not specifically ask about cancer, but he should have ticked ‘Yes’ to the broad question about prior illnesses.

Outcome: Claim denied. In fairness to the insurer, if that matter had been disclosed at the time of the application, the life insured would not have been offered cover in the first instance. The insurer acted on their right to void the contract, and the widow was left without any funds.

Solution: Where possible, avoid direct insurance offers via phone/TV/mail/email. These are generally restrictive contracts and are not tailored to your needs. Engage the assistance of a financial adviser to complete any insurance application to ensure full disclosure of material facts.

Case 2: Full Suite of Cover Not Implemented

At the time of claim, the life insured was 49 years old, had been a chiropractor for over 20 years, and had owned his own practice for 15 years. He thought of himself as a bit of a health fanatic, he was a competitive runner for many years and led a very active lifestyle. He had been married for 17 years and has 5 beautiful children. After 15 years of owning a practice, he was ready to take a backseat, and had arranged for his business to be sold to make a sea change.

One night, just prior to finalising the sale of his practice, he was in the office typing a newsletter article for the Australian Spinal Association when his vision was reduced to a small white dot and he heard a massive bang sound, much like a gunshot going off in his ear. The next thing he remembers is waking up with people surrounding him. Within the next two days he was in the operating theatre undergoing neurosurgery and a biopsy of his brain.

The diagnosis was a brain tumour. The tumour was in the right side of his brain, which should have affected his left side function. But it didn’t. There were no warning signs.

His only insurance in place was Income Protection and a Life Policy. As the Life Policy is only of use upon death or terminal illness, he only had the Income Protection policy to claim on. He had to wait 3 months for his Income Protection Policy to kick in. In this time he still had debt repayments to make, bills to pay and staff to support in his business.

Outcome: The Income Protection claim was paid which allowed the practice to barely survive, but did not provide enough income to support the family. The leveraged properties he owned had to be sold off at fire-sale prices to get the banks of his back. This process put a lot of stress on the family. Whilst the family survived, they did not have the full suite of protection that they needed to protect their assets, and assist in the recovery process.

Solution: If he had actively sought financial advice, the waiting period for Income Protection would have been smaller, and Trauma insurance would have been put in place to provide a lump sum to assist with debt repayment, staff payments and rehabilitation costs. Importantly, stress levels would have been significantly reduced in order to aid recovery. The peace of mind from having an adviser to assist you with your insurance cover comes down to more than just dollars. The knowledge of a good adviser can not only save you money, it can save you unnecessary grief and stress if you need to make a claim on your policy.