This time last year the media was awash with reports about life insurers who were rejecting too many insurance claims. Reports such as this one (by the excellent Adele Ferguson of Fairfax) led to an inquiry from the regulator, ASIC.
If you have time, you might even check out this episode of Four Corners, presented by the same journalist:
http://www.abc.net.au/4corners/stories/2016/03/07/4417757.htm
ASIC’s inquiry examined the performance of all the major insurers when it came to paying claims. And the inquiry revealed some disturbing practices.
10% of all claims made for life insurances are rejected by the insurer. This might sound like a low number – but, remember, we are talking here about life insurance, where you would expect that whether or not an event has happened would be pretty easy to establish. Death cover, for example, which pays a claim if the insured person dies, should not lead to too many situations where a claim is knocked back.
And the stats do bear that out. Of the various types of life insurance, death cover claims are the least rejected. Only 4% of death cover claims are knocked back (although this still seems high in many ways). You can see the relative rejection rates in this infographic, provided by ASIC:
The highest level of rejection was for TPD claims. TPD stands for Total and Permanent Disability. As the name suggests, this is a policy that should pay a lump sum if the insured person becomes unable to work due to some permanent illness or injury. 16% of all claims were rejected – although there was huge variance amongst insurers. ASIC reported that one insurer (later revealed to be Westpac) rejected 37% of all TPD claims.
Trauma claims were next, with 14% rejected. One insurer here knocked back 25% of claims.
When a claim is rejected it can only mean one thing: someone thought they were covered by insurance and their insurer thought otherwise. So, how is it that so many people think they are insured for something when in fact they aren’t?
There are a few reasons. One is that the policy holder does not know what the document actually says. The other is that the policy holder does know what the document says, but the way the insurer defines the words is different to the way others interpret them. That was the issue with the main case that Adele Ferguson wrote about, where pretty much everyone on the planet accepted that a client had had a heart attack – except the insurer, who used a different definition of heart attack.
So, in many ways, it can be a case of ‘buyer beware’ when it comes to life insurance.
But ASIC’s inquiry did reveal some good news. One of the things that it revealed was that, where people used a financial adviser to arrange their life insurances, their claim was less likely to be rejected. This makes sense. After all, professional advisers deal with insurance and insurers all the time. We understand all the ‘ins and outs’ of insurance policies, and we use that information to ensure that our clients get the cover that best suits their needs and their budget. There are fewer nasty surprises when it comes to claim time.
So, if you or someone you love relies on your income – which means you need to be insured – please make sure that you talk to a properly registered, non-aligned financial adviser such as us. This will bring you peace of mind that if you ever need to make a claim, the insurer will keep up their end of your deal.
