Life Insurance Mistakes Can be Costly
Back in June, the story of Bob Lavigne’s struggle to have the insurance company honour his fiancée's life insurance policy was first posted. Bob’s fiancée, Consuelo Hermogino, was diagnosed with lung cancer seven months after being reunited with her children, who had come from Taiwan to live with her and Bob, their soon-to-be stepfather. An immigrant from the Philippines, she had met Bob at church and they fell in love. She passed away before being able to marry the love of her life, leaving the family to grieve and struggle.
At the time of her passing, she had been paying into a life insurance policy for over three months and the family had hoped to rely on that policy after her passing. However, because of an overlooked error on her insurance application, instead of paying out the death benefit amount, the insurance company refunded the paid premiums — a total of $450. On the application, Consuelo had forgotten to check off that she had visited her doctor within the last six months. While this is a mistake that anyone could make, with planning a wedding and adjusting to having their children back in their life, it was a mistake that allowed for the insurance company to reject the claim. The doctor’s appointment was the first sign that something was wrong with Consuelo, as she had been suffering from what was thought to be a dry cough. Although this was not when she was diagnosed with cancer, it was an early warning sign, and it could have affected her ability to get life insurance in the first place.
It's cases like Bob and Consuelo’s that urge people not to rush through applying for life insurance, but to take the time to read the fine print and ask questions. In Consuelo’s case, her fiancé believed it was a language barrier that may have caused her to misinterpret the question, a point that he is hoping to challenge the insurance company on in order to have the claim go through. Perhaps if both parties spoke the same language or were able to understand each other fully, this mistake could have been avoided. It is the applicant’s responsibility by law to ensure they understand the questions asked and that they are aware of the contract they signed. That is why people are advised to ask questions and, if there is a language barrier, to get an interpreter to help them understand the paperwork.
In another case, reported by the Toronto Star, a provincial court determined that a woman could not claim a $97,500 death benefit because her spouse had filled in his application incorrectly. In this case, the husband had health conditions that he did not disclose on the application, as well as other errors, and although he died of an unrelated illness, his policy was voided because of those errors.
No one wants to be denied coverage due to their health. Even if a person is approved for coverage, they may be rated for higher premiums or have riders or a reduced death benefit. In cases like these, it may seem like a simple shortcut to lie on an application, but in the end, non-disclosure can end up costing more than a few dollars. Whether you have smoked in the last 12 months, have asthma or depression, travelled to a certain area of the world, or like to skydive, not disclosing anything asked — even if you don’t think it’s relevant — will work against you in the end. If you are unsure or if something doesn’t make sense, it is important to ask questions and make sure the questions are answered correctly.
One product that is well known for denying claims is mortgage insurance. In 2008, CBC’s Marketplace did an excellent exposé on some of the tactics used to sell this product, which consumers are told is a cheaper form of insurance that will guarantee that in the event of death, the mortgage will be taken care of. Anyone interested in getting this product should watch the video or talk to a licensed broker. Those who offer this type of product rely on people not reading the application through carefully. As the video shows, many of those who believe they are covered by this product find their claim denied. Mortgage insurance operates under what is called "post-claim underwriting," unlike traditional life insurance policies, which have a period of incontestability.
A period of incontestability is generally a two-year term where the insurer has the right to dispute any claim filed. After that term passes, in most cases, the insurer cannot dispute claims. With post-claim underwriting, the insurer can dispute claims at any time, as the person isn’t approved until at the time of claim. That is why if you are looking for an insurance product to cover your mortgage, it is better to opt for term life insurance, where an application must be approved before premiums are collected.
When it comes to life insurance, it is important for anyone applying to understand the process completely. When looking at coverage, discuss with a broker which product would be right for you, whether it is term insurance or permanent. Before filling out the application, let your broker know about any previous health conditions you have had or that may run in your family. After the policy is delivered, if there are any lingering doubts, make sure to check your copy of the policy. By law there is a ten-day period in which if you notice any errors, they can be reported, or if you are unsatisfied with the policy, you can cancel it for a full refund. Life insurance should not be a guessing game. A licensed life insurance broker can help people make sense of the application process and find the right product for their needs, and it acts in the client’s best interest — not the insurance company’s.