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A Matter of Life or Death December 19, 2012

Posted by Audit Monkey in The Joy & Pain of Internal Audit.
Tags: , , ,

It looks like that Daily Mail have run an emotive story over a declined life claim. The relevant article can be read here. Essentially the policyholder has taken out a critical illness policy, made a claim and it’s been refused. The way these policies work is as follows; if you develop a critical illness which is life threatening, the Insurer will pay out, i.e. to your beneficiaries (nearest and dearest) in the event of your demise. The Daily Mail is allegeding that the Insurer, Friends Life, won’t pay because the policyholder failed to disclose that he suffered from ‘pins and needles’ and drank more alcohol than the recommended weekly limit.

Funnily enough I’ve audited these sort of claims and I have some important information to impart for those who are in the dark as to how these claims work. The Insurer will pull your medical records and ensure you have fully disclosed any material facts such as congenital disorders. You could read this as ‘look for reasons to decline your claim’ but I will let you reach your own conclusions.

One of the old favourites they go for is smoking. For example, if you went to the Doctors, say in your twenties when you were a student, with a chest infection and had a hedonistic lifestyle, i.e. drank and smoked heavily. The Doctor casually asks during the examination “do you smoke?” As you are still hung over from the night before, you sputter “cough, cough, whizz, yeah, twenty a day”. The Doctor mutters “you ought to give up” as he types the fatal words (no pun intended) on your medical record “regular smoker”.

Of course, some years later, you have a steady job as an Office Monkey and take out Life Insurance to cover the missus and the kids should you fall ill. You’ve forgotten about your student days (well, you would as you were p*ssed) and tick “No” on the application against the “Smoker” or “Have you ever smoked?” box. Job done, a rather large nail in the coffin.

I appreciate there has been ‘industry discussions’ and it is acknowledged that there is a heavy onus on the policyholder to ensure they have fully disclosed everything. My example above highlights how easy it is to omit something but the policyholder is obliged to act in the ‘utmost good faith’ when taking out a life insurance policy.

In the Daily Mail case, I doubt the claim was declined due to the failure to disclose pins and needles. Usually the policy is reassessed (depending on the nature of the non-disclosure), and treated as if full disclosure had occurred, unless of course the non-disclosure was such that the Insurer wouldn’t have touched it. Either that, or the claim assessors have dropped the baton.

NB: Edited on 20/12/12 to correct grammar.


1. manzoor ahmed - January 31, 2013

It’s a useful article.

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