News/Events

Parties to insurance contracts must deal in good faith [3rd September 07]

When I first came into this Industry it was compulsory to take an exam in English Law and one phrase has stayed in my mind – ‘Utmost Good Faith’ or its Latin format ‘Uberrima Fides’. This means quite simply that all parties to an insurance contract must deal in good faith and make a full declaration of all material facts in an insurance proposal.

Be aware, some people may not be covered by life insurance policies due to non disclosure or misinterpretation, and others may be paying higher premiums when compared to what would be quoted today.

This affects all life insurance, critical illness and income protection plans. All of these policies are normally subject to medical underwriting based on the life or lives assured current age, lifestyle and health. An example of lifestyle could be smoking, alcohol consumption, and activities / hobbies which could have a higher risk of injury or fatality. Health would include body mass index (weight / height ratio), high blood pressure, and medical history for the assured and their direct family. Premiums are set using this information during the underwriting process and are increased in line with the risk to the insurer.

One of my clients, for example dives most weekends and another occasionally participates in motor sport so we had to shop around for the best premium as the underwriting of each insurer varied considerably. Some insurers may even decline or add exclusions to a policy while another accepts the risk with a higher premium.

Recent cases have seen life assurers avoid claims for non-disclosure. It is therefore vital that the assured must disclose, and not make misstatements in relation to, ‘material’ facts during application and until the policy commences. The assurers will have the right to avoid the policy from the outset, so that it is treated as never having been entered into if the facts misstated or withheld. If circumstances change once the plan is in force then that’s a different story.

Did you cover everything in your application – if in doubt speak with your IFA.

The most common reason for a claim being rejected is because the policy didn’t cover what people thought it did. Check your documentation for what you’ll be covered for and what’s not covered (the exclusions).

Average life expectancy figures are increasing, this leading to lower premiums and so policies which are more than 5 years old could be replaced at lower premiums. The answer Review your plans frequently.

Your situation may have changed since your contract has started; for example if you have lost a considerable amount of weight or if you have given up an extreme sport you will be at lower risk. You can request that the insurer reduces the premium due to reduced risk; you may need to complete a new declaration. Alternatively you can apply for new cover, but remember not to cancel your existing policy until a new plan has been accepted and started “placed on risk”. Also compare like with like – another policy may be cheaper but may not offer the same level of cover.

An IFA will be able to review your protection plans and has access to all of the major insurers to find you the best deals. Speak to your IFA.

This article was written by Langtons - Published in the Western Morning News, This is Money, 3rd September 2007