Life insurance is one of the most complex financial products that you will ever buy. For starters, it’s rarely just Life Insurance. Most of the time, in addition to the death coverage, your Life Insurance policy will include total and permanent disability insurance. Some of the time it will even include protection against suffering a major health trauma, like a heart attack or stroke.
But the really hard bit about insurance is that sometimes you won’t know it’s true quality until it is too late.
The allegations last week of dishonest behaviour at the Commonwealth Bank's insurance arm, CommInsure, are a good prompt for everyone to check their policies.
A Fairfax Media and Four Corners investigation found CommInsure policyholders with terminal illnesses had legitimate claims denied, including the insurance company using outdated medical definitions to deny claims.
An estimated 3 million people have CommInsure life insurance through their super funds.
So, what are the key points you should check for?
A good place to start is the "five dread diseases" and how tightly the policy defines them. Here are some examples of the best and worst insurance policy definitions of some of the relatively more common claims so that you can see how their policies stack up.
A common example is with total and permanent disability (TPD) insurance where some policies differ on whether they cover you for loss of your ability to do your 'own' or 'any' occupation.
The best policy definitions will say that you will be covered by TPD if you cannot work in your own profession.
The worst is where you are able to continue to work in any job and in any capacity.
To be paid under terminal illness cover, some policies will pay the death benefit early if the policyholder has a life expectancy of less than one year. The better policies will pay if the policyholder has a life expectancy of less than two years.
The definitions of reasonably common medical conditions also vary greatly.
The best policies define multiple sclerosis as a diagnosis only.
The most restrictive definitions require a diagnosis and a 25 per cent permanent impairment of "whole person function".
For stroke the best policies typically have definitions that are satisfied by a neurologist and evidenced by imaging.
The worst policies have definitions where stroke is confirmed by a neurologist, evidenced by imaging and there is a permanent 25 per cent loss of functional use.
With heart attack, a good policy definition is where the policyholder is considered to have had a heart attack based on one blood test and symptoms of heart attack.
A bad definition is one where there must be ECG changes and the blood tests meet specified thresholds.
For leukaemia, the best definition is where early stage leukaemia is covered. The worst policies exclude stages 0, 1 and 2 of the RAI staging system used for chronic lymphocytic leukaemia, which goes up to stage 4.
The best definitions for skin cancer are those where there is at least partial payments for relatively minor non-melanoma skin cancers, like squamous cell carcinoma, and full payment for any melanoma greater than or equal to 1 millimetre.
The worst policies are those where there is no payout for melanomas under 1.5 millimetres and where squamous cell carcinomas are excluded.
How can you sort your way through all this?
What the latest Commonwealth Bank scandal confirms is something that you probably already know – despite their rhetoric, an institutions primary obligation is to their shareholders.
So beware. Take steps to ensure that you get what’s best for you.
The smartest thing you can do is work with an Independent Financial Adviser.
They will research the market for you.
For example, our research rates and compares all product features for all the major providers. This quality score is then crossed referenced against the cost of the insurance, to give an overall “Value for Money” quotient.
To give you an idea, below is an extract from a research report.
Dealing with problems
Those making an insurance claim should first contact their independent adviser.
He or she is working for you, not the insurer.
This type of advocacy is exactly what may be required during what can be quite a stressful process.
If you don’t have an adviser and you are having problems with your life insurer, talk to your super fund to understand the reasons for the knockback.
If you are still not satisfied, you can make a complaint to the fund.
Do not assume your super fund is going to go in to bat for you if a claim is knocked back. You can escalate the complaint further at no cost to the Superannuation Complaints Tribunal if you still feel you have not been dealt with fairly.
Unfortunately, it could be a long process when terminally ill policyholders do not have time on their side.
The latest quarterly statistics from the tribunal show that for all types of complaints taken to the tribunal it took more than 300 days, on average, for a claim to be conciliated. If the complaint went to determination it took about 700 days for a determination to be made.
Following the Fairfax/ABC investigation, CommInsure says it will establish a panel to review complex claims that have been declined.
Those with questions about their CommInsure policy can call 1800 106 133 or 13 10 56.
Or may be now is the right time to engage with an adviser working for you.
Contact us for a no obligation discussion.