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.
Great post! It’s always best to do the research regarding life insurance policies and what they have to offer. Thanks for sharing!
You;re welcome Caryl. Its been said people spend more time planning their vacations than they do their finances. Kind of ironic since its their finances that pay for their vacations.
Chantal, this is a good article in general; however, I believe that some items deserve correction, particularly in the text of the paragraph:
“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 anytime, 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. ”
1. In the sentence: “A period of incontestability is generally a two-year term where the insurer has the right to dispute any claim filed.” The proper word is “contestability” not “incontestability”.
2. Once the (generally 2-year) contestability period expires, the insurance company can and sometimes does contest the validity of the insurance contract and can successfully do so if it can show that fraud was involved. An applicant who misrepresents such matters as prior or present smoking and/or tobacco and/or related substance consumption EVER in their life (not only during the past 12 months) can be viewed as having made a fraudulent application thereby voiding the policy.
3. Re: “With post claim underwriting, the insurer can dispute claims at anytime, as the person isn’t approved until at the time of claim.” I respectfully disagree with the statement in this sentence. It is reasonable to expect an insurance company to “underwrite” (determine the acceptability of the applicant for the insurance coverage) at some point. The matter of when the underwriting actually takes place has been a matter of debate and discussion for many years. In general, post-claim-underwriting is frowned upon and is illegal in some jurisdictions. We need, however, to distinguish between post-claim-underwriting and the job of the claims examiner. The job of the claims examiner involves determination of the eligibility of the claim for payment. This includes determination that the event giving rise to the claim is sufficiently proven AND that the policy covers the event AND that the policy itself is valid and in-force. It is the latter part that is sometimes viewed as “post-claim-underwriting”.
In that regard it is worthy to note the cost aspect of underwriting. Thorough underwriting is expensive. Term insurance is a cash-cow for insurance companies as the probability of a payable claim during the period of coverage under a term policy is relatively low. Hence, insurance companies compete heavily for the lucrative “term” business, be it in the form of individual or “group” term insurance (“mortgage insurance” through a bank or lending institution is in fact normally group term insurance evidenced by a certificate of insurance that is subject to the terms, conditions, exclusions, etc. of the “master policy”. The insured under group term usually doesn’t receive disclosure of the “master” policy unless it is used to deny a claim)
As insurance companies compete heavily for the lucrative term insurance business, and as they do so normally on the basis of initial premiums, they do all they can to minimize the initial premiums. Unfortunately, that also includes reduction in the cost of underwriting of term insurance. That reduction in the cost of underwriting term insurance is often achieved by such short-cuts as “automated” “filter” underwriting where if the answers to the questions on the application form satisfy a “profile”, the insurance policy is issued. Now, we have to understand that in the rare event that a term insurance policy would materialize into a death claim, the insurance company is not just going to issue a cheque for hundreds of thousands of dollars without verification that the answers on the application form (which were satisfactory to issue the policy) were actually complete, true and accurate.
So, it is reasonable to expect that all claims under term insurance that occur within the initial 2-year period (contestability period) – (other than perhaps low insured amounts under guaranteed issue policies) – would be scrutinized for accuracy, truth and completeness of the answers to the questions on the application form. This is PARTICULARLY SO for term insurance policies issued as “preferred”, “preferred best”, “elite” or the like where in some instances the required “no smoking”/”no tobacco” period at application time is notably longer than just 12 months.
The CBC piece focused on group term insurance but the points made are just as applicable for any term insurance plan and even more so for term insurance issued through “automated” or “filter” underwriting, and even more so if the policy is issued as “preferred”, “preferred best”, “elite” or the like.
In my view as a consumer and as a researcher in the field, purchasing term insurance online or by mail without careful consultation with a consumer interest focused broker who is also properly equipped with the necessary research tools is analogous to playing Russian Roulette with 5 of the 6 chambers loaded.
You don’t pay a cent more for insurance purchased through a properly equipped consumer interest focused insurance broker; however, you are likely to receive far less in terms of peace of mind and value if you don’t.
Hi Ami, Good point on the preferred rates having more stringent periods on the non smoking requirements.