Why 100% honesty is essential when applying for life insurance policies
Clyde Parsons, Chief Innovations Officer
1. Could you kindly share with us the difference between voidance and cancellation?
Insurers apply voidance to policies where a client’s risk was based on incomplete or incorrect information. This might happen when a policyholder did not make a full disclosure during his or her application – either by careless omission or intentional dishonesty. In this instance, the insurer will refund the premiums paid (less costs) and the claim will be unsuccessful.
The cancellation of policies happens under more serious circumstances, where dishonesty took place after a valid insurance agreement was entered into. In the life cover sector, an example would be if a policyholder lies about or withholds details of a condition to manipulate a dread disease claim in his or her favour. As a result, the insurer upholds the right to cancel the policy and keep all the premiums that were paid for it.
2. Could I land in jail for being dishonest in my application?
It’s not likely you’ll go to jail, but you could still face serious consequences. There is a stronger likelihood that you will end up in jail for being dishonest in a claim, for example if you fake your death to claim on your insurance policy. Dishonesty in your insurance application is far more likely to lead to an unsuccessful claim, voidance or even cancellation, depending on the extent of your dishonesty.
3. How do insurers make sure that applicants are honest in their applications?
Insurers keep record of all calls and correspondence, and reserve the right to validate all of the information provided at application stage when assessing your claim. They can also rely on industry databases that keep record of fraudulent interactions. Many insurers also have forensics departments that investigate suspicious claims.
4. Can the insurance companies also be dishonest?
Insurance companies operate in highly regulated environments where honesty is key to maintaining their licenses to provide financial services. Financial services in South Africa is governed by a Treating Customers Fairly framework, which places the onus on insurers to be fair and honest in their dealings with clients. The majority of life insurers in South Africa are reputable businesses that have been in business for many years. However, the complexity of life insurance does mean that there could be tricky terms and conditions in the fine print of insurance policies that could trip consumers up. Or outdated benefit rules that present clients with unnecessary barriers to claim. An example of this would be a life insurer who does not pay dread disease claims if the client dies within 14 days of meeting the claims criteria. As a result, it is important to familiarise yourself with the fine print and to use a reputable, independent financial adviser who will assist you in identifying trustworthy insurance providers.
5. What can consumers do when they find that their insurers were dishonest?
A reputable financial adviser is your first port of call, as they are experts in their field and can help you navigate any instances where you believe there was dishonesty on the insurer’s past.
You can also lodge a complaint with the relevant insurance industry ombud for long-term or short-term insurance or the Council for Medical Schemes for matters involving health insurance.
- The ombud for short term insurance can be contacted through http://www.osti.co.za;
- More information on the ombud for long term insurance at http://www.ombud.co.za;
- And the Council for Medical Schemes contacted through https://www.medicalschemes.com.