When you make the effort to take out a life insurance policy, you are generally trying to ensure that your family will be adequately provided for when you die.
Unfortunately, if you fail to read the fine print or meet your obligations as a policyholder, your family’s insurance claim could be declined – leaving them high and dry.
Here’s what you need to take into account and do to ensure that your claim is not declined:
When you take out an insurance policy, the onus is on you to provide the insurer with as much information as possible so that the company can correctly assess the risk it is taking when it insures you.
For example, if you regularly engage in activities that are considered high risk, such as bungee jumping or abseiling, you should disclose this upfront, particularly if the insurer includes a question about risky activities at application stage. If you fail to do so and you then die while engaging in such activity, your life insurance claim can be declined on the grounds of non-disclosure.
What you can do: It may seem onerous but be pedantic about how much information you supply to the insurer upfront. Don’t leave out any detail, no matter how trivial it may seem.
Pre-existing medical conditions
If you take out a life insurance policy after you have already been diagnosed with a serious health problem, the insurer has the right to exclude that condition. For example, if you had to have a bypass operation on your heart before you took out your life insurance policy, the policy may exclude heart attacks.
So if you were to die from a pre-existing condition or a heart attack, your policy would not pay out. Don’t make the mistake of thinking that life insurers will not check. If a company suspects that you had a pre-existing condition, it will ask your medical practitioners and other sources for all your health records.
What you can do: Take out life insurance while you are still young and relatively healthy. In some cases, insurers will cover a pre-existing condition. It is worth making enquiries with several different insurers to find the best cover for you. Be honest about any pre-existing conditions you may have, even if you don’t think it is a serious one. If you are taking out a policy later in life, check your medical records to make sure that you have not forgotten anything important.
Jennifer Preiss, deputy ombudsman at the office of the long-term insurance ombudsman, says you must remember that the insurer can rely on non-disclosure or mis-disclosure even if you die from a cause unrelated to the non-disclosed or incorrectly disclosed information.
For example, if you failed to disclose your bypass operation and you die in a car accident, the insurer may repudiate the policy on the grounds that it would not have issued you with a policy if you had disclosed the operation. “The duty to disclose is quite onerous and should be taken seriously,” she says.
There are some policies where the insurer does not ask any medical questions, but the policy excludes benefits if the cause of death is related to a pre-existing medical condition. “So the fact that there are no medical questions at applications stage does not necessarily mean that the insurer will not take your medical condition into account at claim stage. It is important to read the policy carefully,” she cautions.
Check the fine print on your insurance policy. If you miss a certain number of premium payments, your insurer will lapse the policy. This means that the policy will cease to exist and you will no longer have cover. The number of premium payments that you can miss before a policy lapses varies between insurers. In some cases, the policy will lapse if you miss just one payment and in other cases, you have to miss three consecutive premium payments before the policy lapses.
What you can do: Set up a debit order for your life insurance premiums to ensure that you never miss a payment, and make sure you always have enough funds in your bank account to honour the debit order.