DECLINE AND DEFER DECISIONS
In some instances, the life company may decide that the risk is unacceptably high and that they are not able to provide cover. They therefore decline the proposal for risk insurance. This is usually for permanent conditions and for conditions which are unlikely to improve despite optimal treatment.
Alternatively, the life company could state that the risk is currently at a level which is unacceptably high, but that they are prepared to review the case in the future (a period such as six months or one year will be given or after certain special medical investigations at the client’s expense). This is referred to as a defer decision as further investigation is required.
The applicant may, for example, have been diagnosed with diabetes recently. While the condition is currently unstable and the outcome is difficult to predict, it is possible that the applicant may be able to control the disease in the future.
The contract of long-term insurance is one of good faith and in this regard the disclosure of medical information must be honest, straightforward and complete in order to enable the insurer to appropriately assess the risk
It is necessary to disclose all information regarding medical background and conditions that affect the risk in terms of an insurance policy when applying for that policy.
It is also often the responsibility of the client to provide any facts that could have an impact on the risk over the term of the policy such as changes to smoker status, residence, and occupation. This will differ from life company to life company.
In addition, before a client cancels a contract, they should also be aware that they may not be offered the same terms as when they originally took out the contract particularly if their status changes. They may also be refused cover later.
DUTY TO DISCLOSE
The applicant is duty bound to disclose all material information when applying for any type of risk benefit (i.e. life, dread disease and disability), so that life companies can adequately assess and price the risk. The strict requirement for full and honest disclosure is a fundamental principle of insurance.
It is generally accepted that the applicant knows more about the risk to be insured than the insurer. For this reason, the law compels applicants to honestly disclose all information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums.
The representations or non-disclosure shall be regarded as material if a reasonable, prudent person would consider that the particular information constituting the representation or which was not disclosed, as the case may be, should have been correctly disclosed to the insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk. (Section 59 of the Long-Term Insurance Act No. 52 of 1998)
Anti-selection and misrepresentation
On identification of material non-disclosure or misrepresentation, an insurer will be entitled to:
Refuse to pay out any current or future claims that are related to the non-disclosure or misrepresentation.
Adjust premiums from date of non-disclosure or misrepresentation.
Recover monies already paid for claims that relate to the non-disclosure or misrepresentation.
Cancel the benefit and/or policy with immediate effect. In this case, premiums less expenses should be refunded.
Offer to apply an exclusion where possible (e.g. back disorders) and continue with the policy.