Insurance companies take it very seriously when information isn't given on an application form. This is the most common reason a life or critical illness insurance claim is turned down. This true story shows that things aren't always black and white and shows how harsh the punishment is. We changed some details to keep the policyholder's identity secret.
Ms. W. had to have surgery to remove cancerous lymph nodes from her groyne. Right after the surgery, she got sick from an infection she got in the hospital. She was very sick and had already made a claim on her critical illness insurance, but then she got some bad news that she hadn't expected. Her claim was turned down, so she would not get the GBP200,000 that she was insured for. What went wrong? Read on and we'll tell you why.
In June 2001, Ms. W went to her doctor because she had a patch of flaky skin on her back. She thought it was eczema. Her family doctor wanted a specialist to look at it, so he sent her to a dermatologist. Before Ms. W's appointment, the patch of flaky skin got better, so she called off the appointment and didn't think about it again. She didn't think it was a big deal, and the doctor didn't make her think there was anything to worry about.
August 2001: Ms. W's life insurance company, Standard Life, sent a salesperson to call on her as part of a regular sales visit. Things had changed for Ms. W. and she now had a young family that depended on her. The salesperson suggested that she get a policy for critical illness, and she agreed right away. Ms. W bought GBP200,000 worth of insurance in case she got sick.
The salesperson helped Ms. W. fill out the application form by talking her through it and filling in the answers for her. When they got to the part about referrals from a doctor, Ms. W wasn't sure what the question meant, so she asked the sales rep to explain. Ms. W says that the sales rep told her that she only needed to bring up a referral if it was about something important. Ms. W. didn't think it was important to mention the doctor's referral because she thought the flaky skin was probably just eczema. Since she didn't say it, it wasn't on the form. Ms. W. filled out the form, signed it, and thought she had given all the necessary information when she applied for a Standard Life policy.
Ms. W soon got word that she was insured for GBP200,000 in case she got a serious illness.
Two years later, Ms. W found out she had skin cancer. She quickly had major surgery to try to get rid of the cancer. Ms. W. made a claim on her critical illness policy, for which she expected to get a payout of GBP200,000.
Soon after, Ms. W got a letter from Standard Life telling her that her claim had been denied because of "reckless non-disclosure." From the insurance company's point of view, Ms. W had lied on the application form, which meant that her claim couldn't be paid.
As you probably already know, Ms. W should have mentioned that her doctor sent her to a dermatologist, and she got in big trouble for not doing so. How could she have done something so wrong?
Two major errors were made:
When Ms. W was asked about any referrals, she asked the salesperson what kind of referrals they were talking about. She was told that she only needed to talk about referrals for serious health problems. The wrong advice was given. The question asked for information about "every time her doctor sent her for tests or treatments." ALL OCCASIONS means ALL, even if you didn't think they were important. The insurance company needs to know everything they ask for on the application form, but Ms. W didn't give them all of that information because the sales rep told her not to.
- The doctor didn't tell Ms. W that her flaky skin could be a sign of something serious, which is something the doctor stood by later. Ms. W didn't know that the skin problem could be something other than eczema. When she was told that she only had to list referrals for serious conditions, she thought that her dermatologist's referral wasn't important enough to put on the form. She made this choice because the sales rep told her to, and it was a mistake on her part.
Taking into account the story above, we think Standard Life should realise that Ms. W made an honest mistake and wasn't trying to hide anything. The salesperson didn't give Ms. W the right advice, but she took it anyway. She wasn't to blame, so Standard Life should lower the fine in this case.
Make sure you don't experience it.
Filling out a form to get life or critical illness insurance is a very important thing to do. You have to read every question and answer it with all the information and detail it needs. You can't hide information, so don't be tempted by the thought of cheaper premiums. If you do, you'll be found out when you make a claim, and the claim will be thrown out. Don't put yourself at risk!
Standard Life will hopefully realise that Ms. W didn't lie to them on purpose and give her the payout she deserves.
People who intentionally lie to their insurers deserve what they will get in the end, which is nothing.
Standard Life rejects 5% of critical illness claims, Friends Provident rejects 15%, and Legal & General rejects 16% of all claims because policyholders withhold information (whether deliberately or not). The insurance industry knows it needs to do something about the problem and is working on new ways to get information from applicants and get the word out about how serious the consequences are for not giving full and correct information.
