I’m not sure if you have seen the press recently about the Managing Director of Galaxy Homes in SA, Peter Eden (see link below to article) being declined a $4mil Terminal Illness payment. This is a really tricky case because of the following reasons:
a) The policy was cancelled in December 2011, and the client was diagnosed in April 2012
b) Mr Eden’s argument is that, unknowingly, he already had the ‘terminal illness’ whilst the policy was still in force
c) The insurance company claimed that Mr Eden was not, in fact, ‘terminally ill’
I don’t want to get into the nitty gritty of the case, and it must be shattering to him not to be awarded the payout, but my biggest concern here is that Mr Eden cancelled his policy of $4million. I have to wonder if he sought advice before doing this.
Interestingly enough, most Life Insurance companies notice that policies are cancelled when people reach their mid-40’s/50’s. The primary reason behind this is due to the cost of the premium. As you may know, premiums increase each year based on your age. The irony is, is that the older you get, the more things start to go wrong with your health, so 50 is actually the most important time for you to have cover.
On the weekend, I heard some concerning news about a very dear friend of mine who had been in hospital all week last week. Fortunately he will be OK and is home now, but the initial diagnosis was that “it might be Cancer”. Instead, he was diagnosed with a clot in his leg. I was speaking with his wife on the weekend and we were discussing how lucky he was. Had the clot moved to his lungs, heart or brain the results would have been dramatic. He could have died, but what if he had a Stroke instead? What if the Stroke had caused permanent disablement? How would the family fund his care if the wife had to continue to work to make ends meet? Naturally, I put my Financial Planner hat on and asked about his Insurance cover. Guess what? At 50, when the premiums became too expensive it was cancelled. The rationale was that if my friend couldn’t work, his wife would be able to meet the mortgage commitments and household expenses…. But what about the full time care costs? This could be as high as $1100 a day. Who has that type of money?
What is done is done, and I am in no position to fully understand their financials to say whether or not they should have cancelled the policy, but I have had clients of my own who have spoken about cancelling their cover for various reasons.
If cost is the issue, the first thing I do is run a budget to understand what they can afford. Something I say to all my clients, whether they are new or existing, is that I would much rather them have something in place opposed to nothing at all. So let’s say you can’t afford my recommendations, let’s look at what you can afford today. At review time we can always try to increase this, but wouldn’t something be better than nothing if you had to claim?
Another client of mine would read the article I referred to earlier, and say that all insurance companies are frauds and never pay claims. If this is you, please please raise your concerns with your Financial Planner. Insurance companies pay out millions and millions of dollars a year. The companies I use all have an excellent track record and all genuine claims are paid. The main reason why a claim may not be paid are:
- Non disclosure (ie The Life company found that the client did not disclose their health history at application time)
- Not meeting the waiting period
- Not meeting the definition (as in the case of Mr Eden)
This is another reason why it is so important for you to have a Financial Planner as they will be able to help you through the application process as well as the claims process and help you understand whether or not you are a chance of claiming. A lot of the direct Insurance policies you can get on line or over the phone do not ask you the relevant health questions therefore at claim time, if they find out that you do have a pre-existing condition, you won’t get paid the claim!
Out of all of this, the most important thing you can do is to talk to your Financial Planner about what you have, why you have this in place and why you think you no longer need the cover. There are circumstances where you may well no longer need the full amount of Insurance, but before you go and cancel at least have the conversation first with a qualified Planner.
This information was prepared by Monarch Advisory Group Pty Ltd, ABN 75155549705. Licensed under Securitor Financial Group Ltd, ABN 48 009 189 495 AFSL & Australian Credit Licence (ACL) 240687 (Securitor) and is current as at January 2013.
This publication provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The information in this publication does not take into account your objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it and obtain financial advice. Any taxation position described in this publication is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation.
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