How secure is it to provide personal details to life insurance companies?
Life Insurance underwriting is a process of obtaining a range of details from an applicant to assess the level or risk that person presents and then applying a relevant premium to that person’s policy. Certain underwriting assessment criteria will require the insurer to make further investigations for people who could potentially present a greater risk due to lifestyle factors or pre-existing conditions. For example, if an applicant was suffering moderate depression and was currently seeking treatment, an insurance underwriter may need to make further investigations to investigate the history of the condition and assess its control. This is all done to help the insurer gain a more accurate assessment of the applicant’s situation.
Life Insurance Duty of Disclosure
As part of the life insurance contract agreement, the insured is required to disclose all known and relevant information to the insurer that may influence the insurers decision on whether or not to insure the person and if so, on what terms. This is known as the insured’s duty of disclosure.
The insured does not need to disclose information that;
- Reduces the risk they present
- Is common knowledge
- That the insurer would already know through their industry experience
- For which compliance with the duty of disclosure is not required by the insurer
The life insurance company is responsible for letting the applicant know about their obligations and the duty of disclosure.
In the event that the person did not provide accurate information during their policy application, the life insurance company can cancel their policy within three years after the date of policy application. If a claim is made during the period, the company is able to reduce the sum of the benefit to the amount that would be reflective of what they would have received had all the information been provided. If the nature of the inaccurate information was such that the company would not have taken on the risk, no benefit payment will be provided. If after this three-year period the company finds that inaccurate information was provided, the company must be able to prove that the applicant committed fraud.
Privacy Protection in Life Insurance Application
Applicant’s privacy is protected under the Privacy Act of 1988. This act regulates how private and public bodies collect store and use people’s personal information. Life insurance companies are controlled by a privacy commissioner who will ensure that the company complies with privacy principles and follows up on any complaints around the use of people’s information.
The act outlines 10 National Privacy Principles that must be upheld by all organisations. The general requirements are;
- Entities may only collect personal information that is relevant to their insurance application and any further contract. This could include information collected during a claim.
- Individuals must be made aware that personal information is being collected about them and how that information is going to be used.
- Individuals must be able to access information that has been collected about them and update any information that may be out of date or incorrect.
- A company must only collect information that is necessary for its activities.
- Companies must take appropriate steps to ensure that information is kept secure.
- Companies must inform the applicant of the consequences that may arise by not disclosing personal information.
- Companies must appoint a privacy officer, put proper training in place for staff and document any policies on the privacy of people’s information.
Types of Personal Information Regulated
Types of information that is regulated under the act can be separated into Personal Information and Sensitive Information.
Personal information: Information whereby a person can be identified, either directly or it can be ascertained by the information that is provided.
Sensitive information: Can include;
- Health information
- Political opinions
- Religious beliefs and affiliations
- Philosophical beliefs
- Membership of trade union
- Sexual preferences
- Criminal record
- Membership of professional or trade profession
Personal and sensitive information can generally only be obtained if the individual has consented to its collection, it is required by law or there is a threat to the person’s wellbeing.
Conclusion: Be Aware of Your Privacy Rights When Applying for Life Insurance
It’s important for all policy applicants and current policy owners to be aware of their rights in regards to life insurance application and claiming. Life Insurance companies are tightly regulated in their use of people’s information that can be highly sensitive and in some cases quite damaging. If ever unsure about your rights around you can find out more at the Office of Federal Privacy Commissioner at privacy.gov.au.