What you need to tell your insurer and the allure of cheaper cover.
Peter Chote, AdviceFirst Financial Adviser, AFA, and highly respected industry expert has a very impressive scorecard. In over 35 years in the industry, he’s managed over one hundred successful claims for his clients and had zero declined. Here he tells us about the importance of disclosure and why changing to cheaper insurance can cost you more in the end.
On a recent ‘Fair Go’ show, an insurance company was trying to get out of paying a claim because the claimant had not told them about something when they took out the policy. More importantly, it had nothing to do with what the person was claiming for!
If this doesn’t sound familiar, it should.
Failing to disclose something to an insurer at the time of application and, in some cases, when you renew your insurance, is material to the contract of insurance. This is because insurers base their decision to accept a risk on the provision of the information that is requested, and sometimes not requested, by the insured. Any information withheld that would have influenced their decision about the terms offered can lead the insurer to alter or change the terms under which they would do so.
At claim time, if this situation – known as ‘non-disclosure’ – becomes apparent, an insurer can take several courses of action. The most severe of these is to avoid the policy. This means treating the policy as though it never existed, refunding premiums in most cases although not always, and refusing the payment of any benefit that may otherwise have been claimable.
Other remedies include the insurer altering the level of benefits based on the terms that would have been offered had the insurer been informed, but invariably the outcome of the claim is not a happy one for either the insured or the insurance company.
The risk of a situation like this is magnified when more and more notes are added to our medical records as we get older and our recollection of our past might dwindle!
Cheaper doesn’t necessarily end up cheerful
As our insurance costs rise, we may consider making changes to our policies and be tempted to look at cheaper providers or policies.
There are some policies that provide guaranteed acceptance. These require no up-front disclosure but claims offices will source a person’s medical and lifestyle information only if a claim is submitted. In normal circumstances these types of policies should be avoided for the simple reason that predictable outcomes at claim time are desirable for us all.
We ought to be cautious and, while there are often good reasons for these decisions, a new policy is not always providing superior or more cost-effective cover. As many people say, the best policy will always be the one that pays the most when you need it the most.
In summary, be vigilant when disclosing information to your insurers. Be cautious when considering moving from one insurer to another. Discuss your duties of disclosure with your Adviser. If in doubt about disclosing something, go ahead and do so.
And as always, remember we are here to help you. A quick check-up with your AdviceFirst Adviser could help you realise a better future. Please give us a call.
Peter Chote is an expert in all areas of financial planning and investments for individuals, families and business owners. He is an Authorised Financial Adviser, regulated by the Financial Markets Authority.