Beware of Non-Disclosure in Life Insurance
April 21, 2017
When it comes to a life insurance contract, the doctrine of non-disclosure is a double-edged sword.
Both insurance advisors and people seeking life cover can be guilty of non-disclosure.
Did you know? – Non-Disclosure in Life Insurance
Many consumers are totally unaware that each time they up-or-downgrade their policies they are entering into a new contract and their waiting period starts from scratch all over again.
What advisors should disclose
Advisors should disclose all implications and costs involved with switching from one policy to another.
Signing a replacement policy advice record implies acknowledgement of all facts involved with the change to status.
Non-Disclosure and Misrepresentation
In legal terms, non-disclosure is indicated when one party fails to relate inherent risk factors to another party.
In principle, insurance is a contract “requiring utmost good faith” not to misrepresent facts by both parties – the company granting the policy and the buyer of the product.
Misrepresentation is when either party makes false statements during negotiations leading to a contract.
State of mind
As is true of most legal interpretations, the water becomes somewhat muddied when considering “state of mind”.
Although false statements indicate misrepresentation, it cannot be as such if not made recklessly or not intentionally to deceive.
Example – Non-Disclosure in Life Insurance
When applying for life insurance, the applicant may be unaware of an existing health condition.
In a true case, an applicant was asked if he suffered from liver and gall bladder disorders, gastric or duodenal ulcers, diarrhoea, gastric or intestinal haemorrhage.
He stated that he did not suffer from any of those disorders.
However, the court found him not guilty of non-disclosure because he was unaware of his medical condition at the time of signing the life insurance contract.
Life insurance contracts embrace the “utmost good faith” premise and require applicants to make full and honest disclosures on the following:
- Medical history
- Drinking habits
- Place of residence
While full disclosure should be inherent in the information required for life insurance, it is understandable that some clients could be reticent about disclosing pre-existing conditions that could disqualify their applications. That could include full disclosure about how many cigarettes they smoke or how much alcohol they consume.
The interpretation of misrepresentation is vital for both the insurance company and the person seeking insurance.
What consumers need to remember is that life insurance is a contract in which a company acknowledges payment of a stipulated sum of money for the duration of the applicant’s life.
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All info was correct at time of publishing