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Updated 20 March 2014

Ten mistakes to avoid on life and disability cover

In times of trauma or grief, you and your loved ones should not have to deal with the stress of having a life policy payment rejected or delayed.

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In times of trauma or grief, you and your loved ones should not have to deal with the stress of being denied disability benefits or having a life policy payment rejected or delayed.

“Ensuring that you are paid when you call on life or disability coverrequires a little more than just paying a monthly premium” advises Selwyn Kahlberg, Managing Director, Alexander Forbes Life Limited.

For cover to remain valid, policyholders need to comply with all requirements in the policy.

While this should not be a difficult task, Kahlberg urges consumers to be aware of the following pitfalls when taking out or maintaining a life and disability policy:

Failing to disclosure all relevant information on your application 

Deliberately withholding or giving misleading information to your insurer is a direct violation of your policy agreement. This can result in all claims being rejected.

Policy holders should fully disclose any previous medical conditions when applying for life and disability cover. If, for example, you have suffered a heart attack and it re-occurs, your insurer may refuse to settle your claim if you did not inform them of the first attack. 

Read more: Is your broker any good?

Taking out insufficient cover

Life cover is meant to provide financial security for your family when you die. Similarly, disability cover needs to ensure that you and your dependents are able to maintain your lifestyle should you not be able to perform your current job.  As such, “it is important to draw up a budget reflecting your family’s daily needs and expenses when deciding on the level of cover required” advises Kahlberg.

It is also important to continue to revisit your insurance requirements as circumstances change. At the very least you should take account of inflation to ensure that your benefits do not lose their purchasing power over time.

Not informing your insurer that you have changed jobs

Changed employment terms can affect the cost and level of your cover. For example, if you were an office clerk and get a new job as a fire fighter, your risk level would increase substantially and your insurer would need to review your policy.

Failing to inform loved ones of your cover or whereabouts of documentation

If you do not inform your loved ones about your life or disability cover, there is a possibility that they may never claim when the need arises.  As such, it is “advisable to keep the policy in a safe place, telling loved ones where the policy is and who they should call in the event that it is needed” advises Kahlberg.

Failing to inform insurers of a claim within the required time

Almost all policies require that claims are notified to the insurer within a specified time where after the claim can be declined. This is one of the most common reasons for claims not being paid. Dependants may forfeit their benefits if they delay telling the insurer about a claim or do not supply the required documents to the insurer within the times specified.

Not keeping the nominated beneficiaries up to date

Always ensure that you let the insurer know about changes to the nominated beneficiaries on all your policies.  Once a claim arises, the insurer will always pay according to what you last instructed them. For example, if you have had another child and want a specific amount set aside for it you will need to change the beneficiary forms held by the insurer.

Not providing full information when making a claim

Always insure that the insurer is given as much accurate information and documentation as possible. This is especially the case on disability claims.  Incomplete or conflicting information will cause delays in getting a claim paid. For example, “if you forget to provide your insurer with your dependents’ ID numbers, or supply incorrect or different numbers” warns Kahlberg. 

Not disclosing that you have taken on additional risk, like smoking or engaging in dangerous activities

Insurers charge higher premiums for individuals that smoke or are at higher risk of getting ill or dying.

“If you sign on as a non-smoker and then start smoking and develop lung cancer, your insurer is within their rights to reduce your benefits or maybe even repudiate your claim” warns Kahlberg.  Similarly, if you are disabled in a once-off parachute jump you will not qualify for disability cover if you have not listed this as one of your pastimes which the insurer has accepted.

Not familiarising yourself with the circumstances under which your policy will not pay

There are times when a policy will not pay out even if you have made full disclosure to the insurer. “These circumstances should be clearly set out in your policy under the exclusions heading and you should take the time to understand these exclusions before signing up” recommends Kahlberg.

Typical exclusions relate to alcohol consumption, drug usage, suicide and violation of the laws of the land.

Allowing your insurer to repudiate your claim without good reason

Consumers should not sit back and allow insurers to repudiate claims except for valid and legal reasons.

If you believe you have a strong case, yet your insurer refuses to settle, Kahlberg recommends that consumers take the matter to the insurance ombudsman. The ombudsman acts as a mediator to settle disputes between insurers and their clients and is an inexpensive alternative to litigation.

Getting all this right is important as the onus falls on the insured to make sure that they understand all terms and conditions that they have been told about by the insurer when taking out a life and disability cover. The first step is to read all the documentation they receive from the insurer.

“If you are unsure of any clause during the application process or anything in the policy wording once you receive the policy document you should ask your insurer to explain” concludes Kahlberg.

(Alexander Forbes Life)

(Picture: couple and financial consultant from Shutterstock)

 
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