Beware insurance pre-existing pitfall

A man heads off to the Cook Islands with his wife, confident in the travel insurance policy he has in his suitcase.

He has a massive heart attack and dies.

However the insurer won’t pay up because the man had a medical history, including being admitted to hospital with chest pain and having been diagnosed with peripheral vascular disease.

In insurance parlance the man had a ‘‘pre-existing condition’’ which was not covered by his policy.

The non-disclosure of existing conditions, the Insurance Ombudsman tells me, remains one of the biggest causes of insurance claims (life, trauma, income protection, etc) being turned down and, indeed, of policies being torn up by insurers.

And exactly what constitutes a pre-existing condition is not widely understood.

Insurers need to know as much about the risks as they can before they offer you a contract, and in the case of personal insurance that means you telling them about all the pertinent things in your medical history.

It’s all the things a prudent underwriter would consider he or she needs to know.

On one level this is perfectly reasonable.

I mean, say I take out a million dollars of life insurance and keep to myself my recent diagnosis of terminal cancer.

You wouldn’t expect the insurer to pay up, or at the very least, you’d expect me to have to pay a one-off, up-front premium of $1 million.

But viewed another way the ‘‘prudent underwriter’’ rule is a little slippery.

How do you know what an underwriter needs to know?

OK, one can be pretty sure about the cancer, but what about the shoulder injury you’ve long since recovered from?

What complicates things further is that I can have a symptom of a pre-existing condition which has not been diagnosed and that can be the basis of a claim being turned down.

Even more complicating is that the wording of many insurance policies when defining what is a preexisting condition is extremely wide.

It defines a pre-existing condition as a condition either ‘‘directly’’ or ‘‘indirectly’’ related to a condition that gives rise to a claim. Yep, that’s clear. I see three lessons in the story of my above-mentioned heart attack victim which was a real life example from a recent case filed to the ombudsman.

The first is that great care is needed in applying for insurance to avoid falling into the non-disclosure trap.

The second is that many people paying premiums now are in danger of finding their insurance essentially worthless if their insurer decides to go back and check their medical notes when a claim is made.

Even the innocent nondisclosure of a medical detail the insurer would have wanted to know about for the purposes of deciding whether to insure you or not, can lead to a claims payment being refused or reduced.

If worried about what you have said, the Privacy Act means you can ask your insurer to let you see your application, giving you a second chance to fess up. The third lesson? Never accept the first ‘‘no’’ an insurer gives you when claiming.

In the case above, widow complained to Insurance Ombudsman.

It sought expert medical advice from a cardiologist which said that on the balance of probabilities, the heart attack was not even indirectly related to the man’s peripheral vascular disease or a previous hospital admission for chest pain.

It wasn’t a pre-existing condition at all. his the