Declined death benefit claims
According to Dempsey, fully underwritten life policies will honour claims provided that: within the first two years of taking out the policy
excluded condition information from the insurer when applying for the policy. He reports that the number one reason provided by life insurers for declining claims continues to be non-disclosure which accounts for 75.8 per cent of claims declined in 2014 and 61.9 per cent in 2013. Dempsey describes the practice of nondisclosure as incredibly short-sighted due to the very real risk that the hidden information will surface at claims stage which may result in beneficiaries being left financially destitute.
The number of claims declined due to suicide during the standard two-year exclusion period dropped from 24.1 per cent in 2013 to 13.3 per cent in 2014 – a significant decline. The suicide exclusion period is instituted to prevent someone from taking out life cover with the intention of committing suicide shortly afterwards. No death benefit will be payable to the beneficiaries if the life-insured takes his own life during this period.
Of all claims declined in 2014, 8.1 per cent was due to the death of the policyholder being caused by a condition specifically excluded by the policy. For example, if an otherwise healthy policyholder suffers from diabetes, the life insurer may exclude this condition from the life cover. This means that if the policyholder dies of a cause unrelated to diabetes, the life policy will pay but the claim will be declined if the death is related to the excluded condition. Exclusions like these allow insurers to provide life cover to people at affordable rates. Criminal intent, by either the policyholder or the beneficiary, was another cause of death benefit claims being declined last year and it accounted for 2.9 per cent of declines compared to 4.6 per cent in 2013. Claims fraud can involve submitting fraudulent documentation and/or syndicate activity aimed at getting the life company to pay a claim to someone not entitled to the benefit.
Guidelines to ensure full disclosure from clients:
importance of complete honesty in their answers
their immediate family
occupations that involve risky activities Dempsey highlights the continuous evolution of underwriting processes and the accompanying improvements benefitting policyholders and contributing to the average cost of life cover that has decreased over the years. “Advances in the medical treatment of chronic conditions have also resulted in revised underwriting practices, resulting in fewer exclusions and a decrease in the cost of life cover,” he says.