In a recent article Manulife Financial reviewed their claims between 2007 and 2010 and determined that for every 1000 claims, they paid out on 998 of them. That is, only 2 claims in 1,000 are not paid. Looking at the claims that were not paid, one quarter was from suicide within the first two years. Of the remaining, they were for clearly fraudulent claims from people who seriously falsified their application or the death was staged and they were alive and waiting for a cheque. It is likely that the same ratio applies with most of the major Canadian Insurance Companies as they thoroughly underwrite applications prior to issuing the policies. So how do you ensure you are in the 99.8% that get paid.
1. Tell the truth
Insurance companies have a number of ways to check to see if an applicant is hiding significant information from them. It is not unusual for us to have an application denied or postponed due to information determined from a private source. This source is usually the MIB or Medical Information Bureau which is an industry funded organization that maintains a database of medical information for those who have applied for life insurance, disability insurance, critical illness insurance, and long-term care insurance. Whenever an application is made for any of these products, it is registered with the MI. This prevents someone from applying for a number of small policies from many companies and thus getting coverage without meeting the medical requirements of this larger amount. In addition, if you are rated or declined there are codes placed against your name in the MIB that state that you were declined or rated but not the details. This is why we need to go back and clarify things with our clients from time to time who failed to mention a previous rating or decline or existing insurance policy. The good news is that a policy is not issued that could result in a claim being denied or rejected as important information about a previous rating or decline was not disclosed. However, it is always better to tell the truth up front than to try and hide it and have the insurance company come back for clarification as it raises questions of credibility. If you are not sure of the intent of a question in an application, take the time to clarify it with your agent at that time.
2. Use an Experienced Agent
An experienced agent will ask about your health up front and, if there are issues, they will do a preliminary inquiry to get you the best possible policy. If there is a rating involved, pay it as it just reflects your higher risk of dying earlier and thus the increased need for the insurance. You want to purchase insurance to protect your loved ones, why decided not to purchase it because you are at a greater risk of dying earlier than the average Canadian.
3. Avoid policies where the underwriting is done at time of claim
Many creditor policies are easy to apply for because they do the underwriting at time of claim. The companies avoid all the costs of underwriting a policy at time of issue and only do it when there is a claim. The problem with this is that those applications that would have been rated, declined, or rejected are discovered until after the fact and the claim is denied instead of being declined or rated. There is no opportunity to decide to try a different company or just pay a higher premium due to a rating. These types of policies are typical for mortgage insurance offered by banks and mortgage brokers. Here is a link to a CBC Marketplace program that dealt with mortgage insurance offered through the banks and illustrates just this problem. It is well worth the time to watch it if you do not understand the pitfalls of creditor insurance. Clearly, the major insurance companies are in the business of paying claims with a 99.8% payment ratio. Why take any chances, just purchase a policy from a major Canadian Insurance company using an experienced advisor.
