Completing an application for life or disability insurance can be daunting. An applicant faces questions about their health history, addressing medical issues that the applicant may not fully understand or be aware of. The applicant may be inclined to answer the questions as quickly as possible or rely on a third party to answer the questions to hasten the completion of the application.
As a result, most life and disability insurance claim denials are because of misrepresentations: non-disclosure of material facts on applications. Therefore an applicant must thoroughly review an application while completing it, and disclose any facts that may be relevant.
Why Information Accuracy is Essential to Applications
Insurance companies set premium costs for insurance policies based on the likelihood of having to pay out claims down the road.
For life and disability insurance, the insurer relies heavily on the medical information provided by the applicant. The insurer is relying on the applicant to provide relevant and important information to determine the premium.
An insurer does not obtain a medical brief at the time of the application to confirm whether the information is accurate. The insurer may conduct a medical examination or request clarification on some answers in the application, but those steps are the only investigation an insurer will attempt at the application stage.
Consequences: Claim Denial and Policy Termination
It is only when a claim is made under a life or disability insurance policy that the insurer will conduct a thorough review of the applicant's medical records.
The review is conducted to confirm the cause of death or medical condition that is the basis for the claim and to ascertain whether the applicant misrepresented or failed to disclose information in their application. Any undisclosed or misrepresented fact that the insurer believes would have affected the amount of the premium charged for the insurance policy can be relied upon by the insurer to deny the claim and void the policy.
It is important to know that life insurance policies that have been in effect for more than two years are incontestable. This means the insurer must prove fraud occurred in order to deny a claim or void the policy for any non-disclosure or misrepresentation.
Advice for Insurance Applications
When applying for life or disability insurance, make sure to read the application with a fine-tooth comb.
Make sure you understand every question you are being asked to answer. Obtain clarification from your insurance broker, or the insurance company, if you do not understand any question. Once a question is understood, make sure to answer it truthfully.
If the question requires details, such as dates or particulars of symptoms, make sure to disclose everything that could even be slightly relevant. Do not hold back. Err on the side of too much information when answering a question.
If possible, don't rely on a third party to write in the answers for you. If that occurs because of language or comprehension issues, make sure to confirm that your answer was recorded correctly and that you agree with what has been written.
The worst case scenarios that can result from full disclosure at the application stage are a larger premium or rejection – much better alternatives than being faced with denial of a claim years later for innocent misrepresentations or non-disclosure on the insurance application.
Remember to consult a lawyer with experience in insurance claims whenever faced with a denial or termination by an insurance company.
Originally published by Ontario Trial Lawyers Association Blog
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
