I take you (insert name here) to be my lawful wife/husband, to have and to hold from this day forward, for better, for worse, for richer, for poorer, in sickness and in health, to love and to cherish…?
You’ve probably heard those words said before, maybe even said them yourself.
Why is it necessary for something to be in writing when we’ve made a verbal contract? Because it’s so easy to forget what was said. Considering that marriage vows are meant for life, a written contract is the perfect reminder of what you said and the consequences of breaking them.
Talking about life and contracts, let’s get to today’s subject…Your life insurance contract
Life insurance is a written contract between two parties. So, there’s no “he said, she said” kind of stuff.
The one party – the life insurance company – promises to pay an amount upon the death of the insured. The second party – the life insured – promises to be honest and upfront with the life insurance company, and to pay a premium for the transfer of risk from themselves to the insurance company.
Well here’s the thing: The insurance company only has your word and your money in exchange for a promise to pay hundreds of thousands of Rand.
Sounds too good to be true. Surely there’s a catch?
Not really. You see the life insurance company has access to all the mortality statistics not only in South Africa but worldwide. For instance, they know on average how long a 25-year-old male, who is a non-smoker, should live except if there is an unforeseen event such as a fatal motor accident. The insurance company then bases their cost on these statistics, as well as the amount of money flowing into their pot versus what they have to pay out in claims.
So, when you complete your application form, they base their cost on their available information. This is all hunky dory as long as what you told them, when completing the application form, is within the parameters of risk they are prepared to take on.
Can you see their problem?
Basing their costs on cold hard statistics is one thing, but it means nothing if the information, they’re basing their decision on, is incorrect. And because there is so much money at stake, it’s when you claim that they might dust off your application form and start checking to see if what you told them about your health, checks out.
What you need to do when you take out life cover over the phone:
You need to disclose all your health issues. We understand that you have a million things piling up on your plate and the call is already starting to eat into your 12H00 meeting.
There’s a very strong temptation to tell the call-centre agent only the important stuff, but when it comes to insurance, divulging everything is the only way you can be 100% safe at claim stage (even if they seem trivial to you).
For example, here’s a question you might be asked.
“Do you have, or have you ever had, trouble with or disorders of any of the following?”
Take note of the ‘Do you have’ portion of the conversation you are having with the call-centre agent. They’re asking if you currently have an issue. Now that’s fairly simple, and a ‘yes’ or ‘no’ answer will suffice.
The problem comes in with the second bit – ‘have you ever had’.
Take Terrence for example. Ten years ago his doctor told him to change his diet or go on medication for his cholesterol problem. Terrence decided to change his diet and start an exercise programme. Through sheer determination, he got the cholesterol problem under control. But can he honestly say he has never had trouble with cholesterol?
Let’s say Terrence dies from a heart attack. Now, remember that he solved his own cholesterol problem through diet and exercise. He even passed the standard medical cholesterol test with flying colours when he applied for the life cover. But during the application process, Terrence had answered ‘no’ to the question about ever having a cholesterol problem. Maybe his focus was more on the first portion of that sentence rather than the second, who knows?
Can you see the potential problem unfolding?
At claim stage, the insurer requests a copy of Terrence’s medical records and uncovers that there was a conversation, with his doctor, about him having to choose between changing his lifestyle or going on cholesterol medication. So, quite innocently, Terrence wasn’t truthful in his application and was technically in breach of his contract.
This is called non-disclosure.
Of course, you might argue that the medical tests done at application stage showed that he didn’t have a cholesterol problem. But what if the underwriter had known about his cholesterol problem at application stage? What if the underwriter had sent Terrence for additional tests, which could have pointed to a deeper underlying problem?
They didn’t have the opportunity to do this as they were unaware of the condition.
That’s why you should be careful when answering your health questions. Rather say too much than too little.
Having a life insurance policy in place is important. Don’t be in a rush when you decide to take your policy out over the phone (or even if you are completing a paper-based application form)
Make sure you consider each question from the insurer’s point of view.
It’s not about trying to convince the insurer that you’re a good risk. Let them have all the facts upfront so that at claim stage there are zero issues.
Until next time
The Wise About Life Team