A 2016 ASIC investigation into the handling of life insurance claims revealed rates of declined claims that were alarmingly inconsistent between different policy types and insurers.
The report also found inconsistencies between specific terms and definitions between insurers, which lead to many consumers buying policies that wouldn't actually payout.
In response to the recent controversies, we've put together a comprehensive policy guide .
Source: ASIC 2016
The Life Insurance Industry under pressure to 'do better'.In a March an inquiry into the life insurance industry from the Parliamentary Joint Committee (PJC) was published as a report. Sean Graham (Director of Assured Support) summarised the PJC Report in an online post.
According Sean, the Life Insurance Industry has been told by the committee to improve it's services for customers in the following areas:
This guide looks at the various types of life insurance and the best ways to avoid ending up with a policy that provides insufficient cover. Read through this guide if:
Obtaining insurance through a financial advisor who may or may not be affiliated with the insurer and who may or may not receive a fee or commission from them.
Pros
Cons
Usually through a superannuation policy, where the trustees provide a default level of group life insurance to the fund’s members.
Pros
Cons
Usually bought direct from the insurance website or over the phone or a sales partner such as a bank as well as marketing companies.
Pros
Cons
When applying for life insurance it's crucial to understand the key differences in requirements between a direct and an advised policy.
The reason the application process is so thorough when using a financial adviser is because the underwriting is sometimes done at the time of application, unlike many policies bought direct from the insurer where the underwriting occurs at the time of making a claim.
Additionally, an adviser will take you through each step meaning a more thorough approach is taken.
The steps involved in applying for a life insurance policy direct from the insurer are typically straightforward, which is why such policies are becoming increasingly popular. In many cases, you will:
By contrast, applying for life insurance through an adviser involves a lot more questions and health-related declarations, possibly including a request for a medical examination and the provision of a full medical history.
Note: Some direct policies will offer a “tailored” option which underwrites during the application process instead of making assumptions and underwriting at claim time.
Many people aren’t aware that they may have life insurance as part of their superannuation that is provided to a group of people (e.g. employees). Many super funds provide a default level of life, TPD and income protection cover for their members. You will usually have the option of either:
The recent ASIC investigation into life insurance highlighted disclosure problems between fund trustees and their members.
A common complaint from people holding life insurance through their superfund is that the communication between them and the trustee of the super fund is often infrequent and unclear. Many policyholders are:
The recent ASIC investigation into life insurance highlighted disclosure problems between fund trustees and their members. ASIC indicated it would be looking into this issue in the future.
Although many super funds provide automatic qualification for group life insurance with no medicals required, there are still situations when claims are denied on the grounds of pre-existing medical conditions. Exclusions can apply to existing conditions if you:
In order to obtain a policy that is clear with what they will and won't cover you for, it's important to disclose relevant personal information upfront. To maximise the likelihood of you being able to make a claim, be sure to have the following types of personal details on hand when you apply:
For a successful application, you will need to provide your insurer with details regarding your other and past insurances, being as accurate as you can. These details may include:
These might include:
You will also need to provide details of your previous doctor(s), which would typically include:
Details of your personal health history will also be required in your application, which could include:
You will also be asked for details of your family history, which might typically include:
Details of your sports and pastimes will also be required to further determine your level of risk and these might include:
Only some direct life insurance policies offer a tailored option. It is also your responsibility to decide what policy and level of cover is right for you.
These traps could bite you in the back at a later stage. Some common mistakes people make when filling out policy applications can include:
Some groups of people might find it difficult to qualify for full life insurance including:
If you fall into one of these groups then you'll either:
There would be nothing more emotionally and financially frustrating than to pay premiums on insurance for a number of years only to discover that you have never been eligible to claim. This could happen unless you check your eligibility before you purchase your policy.
Exclusions that could restrict your ability to claim from the get-go can include:
Check your policy's definition for these common conditions before you buy. It's important to understand that these definitions will vary between insurers.
| Definition | Policy type to pay attention to |
|---|---|
| Heart attack | Trauma |
| Severe rheumatoid arthritis | Trauma |
| Multiple sclerosis | Trauma and TPD |
| Stroke | Trauma |
| Cancer | Trauma |
| TPD | TPD |
| Pre-existing medical conditions | All policies |
Source: ASIC 2016
There is often a lot of confusion regarding a payout for both TPD policies. This section aims to point out the details that could affect your eligibility when it comes to TPD and trauma cover.
TPD (Total and Permanent Disability) insurance is a component of life insurance that provides long-term financial compensation if you cannot return to work due to total and permanent disablement.
Eligibility requirements vary with insurers, and criteria where differences may occur include:
Trauma insurance provides cover if you are diagnosed with a specified illness or injury such as cancer or a stroke that is likely to have a significant impact on your life. Like TPD cover, definitions of terms vary with insurers, making close examination of the policy vital for determining eligibility to claim.
Trauma-related variations can include:
A pre-existing medical condition is generally regarded as a condition you are aware of at the time of applying for insurance. Depending on its severity, insurers will often cover the condition (often for an additional fee) if you declare it at the time of application. However, if you fail to declare it and then make a claim for an illness or injury related to that pre-existing condition, it is likely your claim will be rejected.
While the meaning of a pre-existing condition is broadly understood, its specific definition can vary with insurers, so careful examination of the terms used in your particular policy is always important. For instance, a pre-existing medical condition can include (but is not limited to):
Because the onus is on the applicant to declare their pre-existing conditions, disputes between policyholders and insurers who refuse to pay claims often involve medical conditions which the insurer considers pre-existing.
This may include conditions which the policyholder:
While claims procedures vary with insurers and policy types, the initial steps involved in making a life insurance claim are typically the same. The insured or their beneficiaries contact the insurer and notify them of their intention to make a claim and the insurer conducts an initial assessment of the claim.
Typically, within 10 days of being notified of the pending claim, the insurer will provide the insured with a claim form if one has not already been lodged. Then, once the claim form has been lodged along with the necessary accompanying documentation, the insurer will assess the claim in detail and decide whether it will be paid or whether more information is needed. If after examining all the evidence, the insurer denies the claim, they must provide written reasons to the claimant and inform them of their right to request a review of the decision.
Each type of cover will require you to provide different kinds of evidence in support of a claim.
If claiming for a death, you will need to provide:
For employees, you will need:
If you are self-employed, you will need a:
If claiming for a specified major illness, you will typically need to provide:
Additionally, your insurer may request a review of your condition by a specialist consulting doctor if considered necessary.
If claiming for total and permanent disability, you will typically need to provide:
You may have to undergo an independent medical examination and an employability assessment by an appropriate consultant.
Source: ASIC 2016
The timeframe for a claim to be processed varies with insurers and policy types and is dependent on a range of factors such as:
If a claim doesn't go as you expected, you still have options.
If you are unsatisfied with a claim outcome, the first thing you can do is to complain to the insurer through their internal dispute resolution (IDR) process. As licensed financial services, all insurers are required to have such a process in place and they must attempt to resolve the dispute with you directly in the first instance.
If you are unhappy with the outcome of the internal dispute resolution process, your next option is to seek help from an external dispute resolution (EDR) scheme. This is a free, independent consumer service that provides an alternative to going to court.
Australian insurers are required to be members of an ASIC-approved EDR scheme such as the Financial Ombudsman Service (FOS). Such a scheme can resolve your dispute through negotiation and if it sees fit, it has the power to make a binding decision on the insurer which could result in you receiving financial compensation. This is not always the case though and their main role is to seek a mutually agreeable solution, which in some cases may involve something as small as an apology from the insurer.
If you are unhappy with an EDR decision on your case, your next and final recourse is to take the matter to court, which may only be advisable if the amount in dispute is substantial.
If your complaint relates to group life insurance held inside superannuation, the Superannuation Complaints Tribunal (SCT) may be able to help. The Tribunal deals with complaints about the conduct and decisions of trustees, insurers and other decision-makers in relation to superannuation and typical complaints can include:
If the Tribunal decides it is able to deal with your complaint, it will attempt to resolve it through conciliation by reaching a mutually agreeable settlement between all parties. If conciliation is unsuccessful, the Tribunal will then review the complaint and make a decision, which is binding on all parties and enforceable by the Australian Securities & Investments Commission (ASIC).
If a scheme such as the Financial Ombudsman Service (FOS) decides in favour of your insurer, you are not bound by their decision and still have the right to take your complaint to court. But if it is a small dispute, this may not be worth your while, as court cases can be very expensive with no guarantee of winning.
If the dispute involves a large amount and you are determined to take the matter further, the best advice would be to consult a lawyer, who can quickly determine whether you have a good case to take to court.
Picture: Shutterstock
Is there a income protection cover that will include pregnancy? I am worried about complicated pregnancy that may delay my ability to return to work and earn a income. What things should I look out for in covers that include pregnancy?
I have also read that some also offer free child cover incase the baby passes away eg stillborn etc. These are not covered in detail.
Hi Ema,
Thanks for your question.
Kindly note that most if not all insurers will NOT pay claims relating to pregnancy, giving birth, miscarrying or having a pregnancy termination but you do have the option of pausing your income protection premiums. There are a number of insurers that offer a ‘Pregnancy Premium Waiver’ so you don’t have to pay for cover while on maternity leave. You can use our online form here to search for insurers that offer pregnancy premium waiver.
Cheers,
Anndy