Honesty is the best policy

Chaim Shalpid, Senior Consultant, Octagon Financial

In 2012, Life Assurers paid out 99% of claims for death on underwritten life policies. 1% or rather 352 claims were rejected due to policyholders misleading their assurers by not disclosing all relevant information.

In order to place these statistics into financial context, in 2012 dependents of policyholders who died received R6.8 billion, however, the dependents of policyholders whose claims were rejected lost out on R213.8 million, a sizeable amount of money. What does this mean to those dependents? Due to the non-disclosure of the deceased policyholder, their action exposed their dependents to possible financial hardship.

Therefore, the deceased’s intended purpose of taking out assurance was never achieved, i.e. providing financial stability for their dependents in the event of a life changing situation.

Here are some interesting statistics; of the 352 claims that were rejected in 2012, just over 70% were declined due to non-disclosure by the life assured, the other 30% was declined due to suicide, listed exclusions and fraud. It is common practice amongst most assurers to have a built in standard two year suicide exclusion on the policy, i.e. if the life assured purchases a life policy and commits suicide within the first two years of the policy being in-force, the assurance company can reject the death claim.

From the stated figures above, it is quite clear and noticeable that non-disclosure seems to be prevalent, which could have devastating consequences later on. What would be classified as non-disclosure?

Non-disclosure is the deliberate failure by the life assured/policyholder to disclose information about a medical condition, both present and past, a lifestyle habit both present and past that is material to the insurer’s assessment of the risk the life assured would pose. An example would be if the life assured did not disclose that he/she participates in a dangerous sport, eg: motorbike racing competitively, a dangerous hobby, eg: feeding crocodiles on the weekend at the local zoo or suffers from a severe illness or condition, eg: diabetes or cancer Since the person applying for life cover has more information relating to his/her medical health and lifestyle habits, “the law compels the applicant to honestly disclose all information likely to influence the decision that the insurer will make when determining the appropriate terms and conditions”.

Unfortunately, most applicants resort to the tactic of non-disclosure in an attempt to secure lower premiums or to obtain life cover without exclusions.This dishonest practice can come back and bite very hard later on in life and hurt the people that the applicant wanted to initially protect.

When purchasing cover follow this advice

•  Fully complete the application form ensuring that the medical questionnaire on your medical history and lifestyle is accurate and correct.
• Medical information that you might think is irrelevant needs to be disclosed. Rather let the underwriters’ asses the risk than yourself.
• In certain cases, it would be better to pay the appropriate premium or have an exclusion added to the policy rather than not disclosing the facts and have the claim rejected.
• Be honest about your smoking and drinking habits.
• Disclose dangerous recreational activities like, skydiving, deep sea diving, or if your occupation involves risky tasks like mining, blasting, flying or handling weapons

If an individual will follow these guidelines, then he/she can feel re-assured that if a claim is ever submitted, there will be no doubt, speculation or questions asked. It goes without saying, that when it comes to life assurance policies, honesty is truly the best policy.