Liam Croke: Declare everything - or it might cost you dear in the end

It’s a nightmare scenario on so many levels when a loved one dies, but to make matters even worse, an insurance company then refuses to pay out on a life policy the deceased person had, leaving their family in financial turmoil.

It’s a nightmare scenario on so many levels when a loved one dies, but to make matters even worse, an insurance company then refuses to pay out on a life policy the deceased person had, leaving their family in financial turmoil.

You may have been listening to the Joe Duffy radio show back in June when a widower was telling Joe that he and his three children were living this nightmare. His wife died unexpectedly and when he made a claim on her life policy, the insurer refused it. The knock-on effect of it not being paid out was that their mortgage then went into arrears and became so big that he was served notice that their house was going to be repossessed.

It was an incredibly unfortunate story and I wish I could tell you that this is a rare occurrence, but alas it isn’t.

Around 5% of all life and serious illness claims are declined, which, I think is alarmingly high. There are many reasons why claims are refused, but insurance companies will tell you that the biggest is down to non-disclosure of medical facts at application stage.

This non-disclosure only comes to light when a claim is submitted. When an insurer begins to examine the terms of a policy to make sure the policyholders have fulfilled their obligations and discovers that something was omitted, it can see this as grounds for having the claim rejected. In such a scenario, the best outcome you can expect is a refund of premiums.

I spoke with a representative of one life assurance company this week and he confirmed that if someone failed, for whatever reason, to declare a medical condition on the application form or failed to answer a question correctly – and even it had nothing to do with the reason the person died or suffered the illness from –the claim can be voided.

Sometimes people fail to understand the consequences of not providing the full picture of their health and think that a condition they have or had was so insignificant that they didn’t need to disclose it. This is a mistake, so don’t assume anything and let the insurance company decide whether something is or isn’t important. Declare you had that ingrown toenail five years ago. Tell the insurance company about the pulled muscle that required medication. If you are in any doubt at all, just tell them everything. If you are unsure about any question being asked, don’t be afraid to ask the insurance company – or get some guidance from your financial advisor.

Of course, sometimes people deliberately avoid mentioning they smoke the “odd cigarette at weekends” because they think to be classed as a smoker you have to smoke every day. They might prefer not to disclose that they were treated for depression a couple of years ago or that they indulge in deep sea diving every weekend, for fear that they might either be declined cover or charged a premium they cannot afford. And they think that because the application was accepted, they got away with this ‘error of omission’. That might be true in the short term, but it has the potential to cost their loved ones dearly in the end.

Another reason why I think people make mistakes they later regret when completing proposal forms for life or serious illness cover is how quickly they fill them in. The form is very long and it can be confusing and sometimes complicated. So, you need to take time to complete it properly. If you have a life policy in place, and think back to when you completed in the first place, the chances are good that you probably did it in front of a bank official or your broker and completed and signed it within five minutes. People do this for the sake of getting it in place without delay, or they need to get the policy in place quickly. They flick down through the list of questions and answer them very quickly. Please don’t do this – take the proposal form away with you, and take your time to read through it thoroughly, and when you have it completed, carefully read back over it and only when you are absolutely happy that it is completed honestly and correctly should you sign it.

I referred earlier to people not declaring they had previously been treated for depression when looking for life cover and in many cases, it isn’t because they are trying to get away with anything, it might be because they are simply too embarrassed to refer to it, for fear of being judged by others. And in many cases your financial advisor might be one of those others. This is completely understandable but you have got to try and move beyond this feeling. It’s simply too important to get wrong.

Sometimes when people make an application for life cover and it gets refused on medical grounds, they try another insurance company but this time they leave out whatever condition on the proposal form that was the reason they were refused cover by the first company. Life companies have access to a medical register that enables them to view and share information with one another and its main purpose is to alert companies that a person may have already made a proposal with another company but was refused. So, if one company refuses you cover the chances are the rest will as well, so rather trying to get cover by making a false declaration, find out why you were refused in the first place. And see if you have grounds for appealing that decision.