Insurance
6 min read
Author: Bill McGavock
Insurance adviser with over 25 years of experience
Reviewed by: Darryl Scott
Darryl Scott, Insurance Adviser
One of the big questions property investors ask me is: “Bill, now be honest: If I take out an insurance policy,will the insurance company actually pay me at claim time?”
This is important, because you need to know that claiming on your insurance isn’t like a John Grisham novel.
Reputable insurance companies are geared up to pay you out.
And almost every month I help people get paid out by their insurance companies. That’s my job as an insurance adviser.
But, sometimes insurance companies don’t pay out. They deny your claim. This is often stressful and surprising for those who took out insurance.
In this article, you’ll learn the 5 reasons your claim might be denied.
Some people lie on their insurance applications.
This always comes back to bite you. If you lie on your application, there are serious repercussions.
Some people are as blatant as saying, “No, I don’t have type 1 diabetes” ... when they do.
When the insurance company finds out, the policy is void from inception.
This means you’d have no cover; it’s like the insurance policy never existed.
Sometimes, the insurer might return the money (premiums) you’ve paid, but that’s not guaranteed. They’re within their rights to keep the money, but some will return the premiums, and then cut ties for good.
So, if you lie on your insurance application, you might end up having paid money for nothing.
What’s worse, you’re now uninsurable. No insurance company will want to touch you after non-disclosure.
Now, sometimes it’s not always this drastic. If you lied about smoking (you said you don’t smoke, but you do) the insurer will consider whether they would have covered you anyway.
To be fair, the answer is usually “yes”.
However, smokers pay higher premiums, so they might deduct the additional money you should have paid.
If your claim is for $25k, and you should have paid $20k more in premiums over 10-something years ... they might deduct that amount and pay you out the remaining $5k.
Sometimes, non-disclosure is more subtle. People can genuinely forget things.
While it’s unlikely you’ll ever have intermittent heart disease or cancer ... you can have intermittent anxiety or depression.
Sarah might have had postpartum anxiety after having a baby. But after her baby grew up, and she got some support – she recovered.
Then, 10 years later, she went through a divorce and experienced depression.
Sarah forgets to mention this because it’s not a chronic or hereditary illness.
It’s human nature to have mental health challenges after a traumatic event, but mental health can be sticky (see #5).
This is why it’s crucial to over-disclose. That means tell the insurance company everything. And I mean, everything.
When a client says, “I’m not sure if this is important, but…,” I always ask for more details.
You don’t want to get to claim time and find out the insurance company won’t cover you.
Here’s an interesting one that may surprise you.
Your insurer accepts you in an “as is” condition at the time of your application.
If you're accepted as a non-smoker, and you have no “definite intention” to smoke, then you can start smoking any time after that without penalty.
The same applies to other things like gaining weight.
Let’s say you apply for insurance. Your BMI is acceptable and they approve you. Then, you put on 100kg in 6 months and get sick. The insurer can’t back out.
Similarly, if you ticked the “no I don’t do any hazardous sports” box ... and you decide to become a parachute instructor later, you're still covered.
It’s about what you're “actually” doing at application or have “definite plans” to do.
But the “definite plans” to do is a grey area.
While, of course, you don’t know what sort of hobbies you’ll take up in 10 years ... you should tell your insurer if you’re on your way to buy a parachute because this can sometimes fall into the “non-disclosure” category.
More from Opes:
People often buy trauma insurance online because they believe it’s cheaper and less hassle.
But just because the policy says “trauma cover” it doesn’t mean it will cover what you think.
Remember, trauma insurance is where you get paid a big whack of money if you get seriously ill. For example, if you get cancer, heart disease, or suffer a stroke.
Trauma cover can list up to 47 illnesses that qualify for a payout, it depends on the insurer.
However, each of these illnesses has specific criteria to meet.
So, you might develop a heart condition, but if it’s not serious enough to trigger a payout.
That sometimes happens if you buy a poor-quality policy from an online website.
You don’t want to get an illness, and then discover you weren’t covered. That’s why you should speak to an insurance adviser. They know the terms and conditions and can help you avoid these pitfalls.
To get paid out, you need to give the insurance company accurate and complete information.
Sometimes clients miss crucial details. In this instance, the insurer will ask for more information. They might want a medical note from a doctor.
This often happens with trauma insurance. Because when you claim on trauma or life cover ... you usually aren’t in a position to handle it yourself.
Either you or a loved one is sick, so if you miss some of the details your payout may be delayed.
This is where an experienced insurance adviser can add value. They’ll handle all of these details so you can focus on your recovery.
Two types of people struggle to get insurance:
1) People in risky jobs and
2) People with pre-existing mental health issues.
So, if you’re a motocross driver, a jockey, or a policeman — you might have trouble getting certain types of cover.
I once had a professional rugby league player looking for income protection insurance.
He knew he could get injured and lose his income, but so did the insurance company. The risk was too high, so no insurer would offer to cover him.
Mental health issues are another significant factor.
Why? The biggest claims for income protection involve mental health. If someone tells me they’ve been treated for anxiety or depression, I explain there is usually an exclusion.
This means if, down the road, you leave work due to a mental health issue, you may not be covered.
What happens if you don’t tell the insurance company? They will likely find out later if you make a claim because your history will be in your doctor’s records.
Sure, most people experience some anxiety or mental health issues in their lifetime. The key difference is whether you’re using a prescription ... before taking out insurance.
A good insurance adviser will reduce the chances of issues at claim time.
They’ll ensure you’ve disclosed everything beforehand. They’ll also help you gather the paper work when you make a claim (but aren’t able to do it yourself).
Plus, they’ll ensure you have quality insurance without too many loopholes in the fine print.
Beyond that, just make sure you don’t lie — or take up smoking.
Insurance adviser with over 25 years of experience
Bill McGavock is an Insurance Adviser at Opes Insurance. He has over 25 years of insurance and customer service experience. Bill provides personal risk advice and claims assistance for individuals, families, and businesses. He specialises in helping property investors protect their ability to grow wealth. Bill is based in Auckland.
