Personal insurances such as Income Protection, Life insurance and Total and Permanent Disability (TPD) are becoming impossible to get unless you are in perfect health. This change has occurred gradually over the past few years but has now reached the point that it’s become a real concern. This has a number of consequences which I discuss below.
Insurers have a bad name
We heard some
shocking stories last year via the Banking Royal Commission about insurance companies including questionable and even unethical sales tactics, unreasonably denying paying claims and so on. I’m not sticking up for the insurance companies. Their tactics are boarding on criminal. However, also, a big contributor towards these problems is that people don’t understand what they are buying.
When it comes to insurance cover, the advantage of “no questions asked” might seem convenient, but it just isn’t in your favour. You want to ensure the insurer comprehensively underwrites your cover before they put the cover into force. This includes asking you questions, undertaking medical checks, reviewing medical history and so on. Doing so leaves them less room to use the excuse of a “pre-existing condition” to deny any future claim.
Also, it’s important to understand the quality of the policy. Quality refers to the terms and conditions and definitions within a policy document. These all impact how comprehensive the cover is. If you get these two things right (i.e. quality and underwriting), you are much less likely to experience problems or nasty surprises down the track.
What has changed?
It is the underwriting and assessment process that has changed over the past few years. Insurers are, in our opinion, being over-stringent.
Normally, if an insurer believes that you have a pre-existing health condition, they can take one of four actions:
1. Approve the cover anyway (this is very unlikely); or
2. Add an exclusion on the policy (meaning that you are not covered if that health concern causes you problems); or
3. Add a loading onto the premium (i.e. charge a higher premium); or
4. Decline the cover.
A policy exclusion or outright decline are the most common outcomes – even for minor, inconsequential, asymptomatic health conditions! Lately, it seems that u
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