Life and Critical Illness Insurance – Tell the Insurers Everything When You Apply

Insurers will often reject claims on policies that cover critical illness or life. This is because they have not disclosed important information. We want to help you understand some issues. However, we have kept the names of policyholders and other details secret to protect anonymity.

Mrs A was suffering from a secondary infection after having her lymph nodes removed in her groin. She then received worse news. The PS200,000 she was expecting was not covered by her critical illness insurance. It is important to understand the details of the events in order to understand the reasons and how they occurred.

Mrs A noticed flaky skin on her chest and back in June 2001. Mrs A believed it was eczema. After a quick consultation, Mrs A was convinced it was eczema and her GP recommended a referral for a dermatologist. The flaky skin quickly healed, and Mrs. A cancelled her appointment with the dermatologist. Apparently, her GP didn’t express any concern. Years later, Mrs. A admitted that she was likely unaware of the urgency of the referral.

A Standard Life sales representative made a routine trip to Mrs A’s home nine weeks later. The representative looked at Mrs A’s life insurance and suggested that she have a PS200,000 Critical Injured policy. Mrs A was now single with her young family. That sounded like a great idea to Mrs A, and she agreed immediately.

The sales representative took the form, went through each question and wrote down Mrs A’s answers. Mrs A was asked by the sales representative to reveal all instances when her GP recommended that she be referred for testing or treatment. Mrs A claims that Standard was only interested in details about appointments that were related to serious conditions. Mrs. A didn’t believe her referral for what she believed was eczema fell under that category, so she didn’t mention it. The form was signed by Mrs A, who believed that she had fully disclosed all information required by Standard Life.

Standard accepted her application and issued the PS200,000 Critical Illness insurance policy.

o Mrs A was diagnosed with skin cancer two years later. The cancer was quickly removed by major surgery. Mrs A made what she believed was a valid claim because her critical illness policy covered her cancer.

Standard Life rejected her claim on the grounds of “reckless not-disclosure”, which is the insurance jargon for Mrs A’s failure or inability to disclose the cancellation of her appointment with the dermatologist.

The Issues

Following events, Mrs A was shown that her application should have included a referral to a dermatologist. Why didn’t she reveal the information?

Two factors conspired to create this situation. Mrs A was told by a Standard Life sales representative that the question asking for her GP referrals for tests or treatment “all occasions” meant that she only had to answer about serious conditions. This interpretation was completely wrong. This question was asked for ALL OCCASIONS. These questions are carefully phrased and ALL refers to ALL. It is not asking applicants to make a judgment about whether the grounds for referral were serious. It was obvious that the representative was wrong.

Secondly, Mrs A did not receive a referral from the dermatologist and was not informed by her GP about the possible seriousness of her flaky skin. Mrs A cannot be held responsible if she was not aware that her condition was potentially severe when she filled out the insurance application. The representative stated that the referral question was only for serious conditions.

Based on our information, we believe Mrs A is not to be blamed. The crucial error was made by Standard Life’s representative. The representative of Standard Life made a fatal error in directing the customer to the right question. Standard Life should be paid out, in our opinion.

Lessons to be learned

Each question on an insurance application must be carefully read. Don’t be afraid to tell the truth. The insurance company may claim that you have misled them if you omit information they request. Do not be tempted to leave out information to get a lower premium. Although you might be able to get a lower premium, it is a false economy if your claim is denied.

We are hopeful Mrs A will receive her payout, as she was misled by circumstances beyond her control. We are confident that she was honest. We are proud of her and wish her all the best.

However, applicants who intentionally withhold information or provide misleading information to their insurers are not allowed to apply.

Postscript: Standard Life refused to pay 5% of all Critical Illness claims because they were not disclosed. Other insurers have higher numbers – Legal & General rejects 16%, Friends Provident rejects 15%. Insurance companies are trying to rectify this situation by changing the way they request information from applicants and the way that penalties for non-disclosure of information are explained.