Insurers are devilish on the details
You may pay the premium, but the insurance company is not obligated to meet a claim.
YOU BUY a house and insure it. The house is destroyed in an earthquake (or fire). You claim on the insurance policy and the insurance company dithers. Eventually the insurance company writes to you rejecting the claim: You had not told them that you had rented out the house for three months while you were overseas and so your insurance is, therefore, nullified.
Changes to your life, your circumstances, to what you own and what you do usually mean changes to your insurances. These changes may mean that if you do not inform the company of the changes, you are no longer insured.
Insurance is a contract between you and a company. Most of us know what that contract is about: The insurance company agrees to take on a risk for you (one that you cannot afford to take) and pay out if that defined event befalls you. Fairly straightforward, you would think. Well, no, not quite – the principle may be straightforward but, like many contracts, there is a lot of fine print and with insurance there are devils residing in the detail.
There are plenty of people who have encountered one of these devils – and hellish they are too. In many cases these people have railed against their insurance company’s reluctance or refusal to pay out and I have a great deal of sympathy for them. However, buried within this fine print is a sometimes fiendish clause that says that you will tell the insurance company if there is any material change to your circumstances.
Changes to circumstances can mean all sorts of things: Your life insurance may be nullified if you take up a hazardous sport such as climbing or scuba diving; your contents insurance may no longer be valid if you put your things into storage; your house insurance may be void if you do additions or alterations. In all of these cases, you may no longer be insured – you may pay the premium, but the insurance company is no longer obligated to meet a claim. There is big money and people’s lives at stake with this. Imagine your life if your house was destroyed and the insurance company refused to pay.
This might look like the insurers are wriggling out of the deal – after all, the insurer has accepted the premiums that you have paid. Well, it may look like that but to be fair to the insurance companies, they have agreed to take on your risk at a certain level. If this risk level changes (perhaps because you have rented the house or because you have decided to go off and climb the Eiger), the contract says that the insurer reserves the right to either stop insuring or to reprice.
Insurance company managers are answerable to their shareholders and they will stick to the terms of the contract. They have calculated a risk in certain circumstances and want to be able to recalculate the risk if the circumstances have changed.
The key thing is that if there is a significant change to your circumstances, you need to tell your insurer. This may be that you no longer have a garage for the car, you are shifting house or have had a change in your health. If you do not call the company, you may not be insured.
I know that it is not easy to remember to call the insurance company when something changes in your life. You probably have enough going on.
This is one of the benefits of using a broker or risk adviser for your insurances. Such people (assuming that they are doing their job) should review your insurances annually. They will also check if there have been any changes in your life and should have a list of the things that they can run through with you to see if your risk has changed. They can then tell the insurance company what has changed and so keep your insurance valid.
A new job or business, shifting house, a new child, relationship breakup, a new partner, changes to your finances or health, the establishment or disestablishment of a family trust all mean that the risk may have changed and require a review of your insurances.
After all, you certainly do not want to continue to pay a premium for an insurance that is effectively void because you did not call the insurance company.