This past year, I helped quite a number of people with their protection plans. During this process, I notice an interesting trend where people with pre-existing conditions tend to have a lot of misconceptions of insurance. In this article, I aim to clarify some of this misinformed thoughts and also suggest a proper approach to getting the most optimal coverage for themselves (if possible).
Common beliefs that people with pre-existing tend to have when purchasing insurance
Non Disclosure = Insurable
Insurance is often bought without the need to go for medical examination. The health declarations is often based on good faith. What this means is, insurers will take clients word for their declaration at the point of purchase. Typically, if you say you are completely healthy, you definitely won't have issues buying a protection plan.
Now the issue arise when a client is not healthy but wish to not disclose the condition or decides to not inform the advisor. The problem with non disclosure typically happens at the point of claims. Insurers are not stupid. Even if they take clients' word for their health declaration at the point of purchase, when a significant sum of money is at stake, obviously they will validate the claims to ensure that all declarations are accurate before giving a payout. Ask yourselves this question, if today you are the one who needs to pay money to another person, surely you would also validate the legitimacy of the payment. Why then would the insurer not do the same?
In the event of undisclosed/inaccurate declaration at the point of purchase, insurers would typically review the coverage as though they knew of the issue at the point when client bought the insurance and decide what terms to offer the client. Sometimes, if the condition undisclosed is serious enough, insurers can choose to void the entire coverage and refund client the premium. Other times, there will be a conditional offer letter issued to the client to see if they would have accepted the substandard terms offered had they declared their health condition back then.
You see, there's no point in not disclosing your medical condition simply to get covered. You won't get the insurance payout anyway when you claim. Applicants might as well be honest and then get a clearly defined answer from insurer whether or not they can be covered and a definite understanding of what is excluded. It's a nightmare for the client to go for the most expensive treatment thinking they managed to mislead the insurer into covering them then later realise their claims are rejected and potentially have their plans voided as well. It serves no purpose!
Some conditions are not serious, they should be covered
For starters, most consumers are not medically trained. Just because a person can walk, run, go to work and go overseas for holidays does not equate them to being healthy. I've seen cases of diabetic patients telling me they have no medical issues or people with high cholesterol saying they are perfectly fine. People overweight and underweight also take offence when informed there might be possible exclusions in their coverage.
While I can understand that a non medically trained individual may perceive certain conditions as minor, I'd like to explain the rationale of these risk assessments from the insurers' point of view or anyone who will be promising to give out money if certain conditions are met for that matter.
These so-called minor conditions can lead to more severe health implications. A person with these conditions have a higher probability of making insurance claims than someone who has no issues at all. I once asked a prospect this question, suppose someone with his medical condition came to him and offered to sign an IOU with him. Unhealthy person will pay this prospect premiums every year but if a critical illness happens to him, the prospect needs to pay him $200,000. Would he sign the contract with this person knowing he isn't in pink of health? The prospect kept quiet and no longer argued with me.
This is precisely my point. People with pre-existing conditions naturally want the most favourable terms for themselves but no profit making entity will do business with a high risk of losing money. When the same proposal is put forth to most people, they equally will 'chicken out'. This is because they can see that the risk to reward ratio is unfavourable. Frankly, like most agreements, it is also a matter of whether insurer A wants to do business with the insured. No profit-making entity is going to turn down business without a sound basis. Likewise, no one likes to do a 'high chance will lose' business.
The Insurance System Only Works If Risk Is Managed
I can understand the above content sounds very unsympathetic. However, even if all financial advisors want to get clients covered on the best terms, the insurance system (many people paying small premiums so that when the minority makes a claim, the insurer can pay) only works if the payouts are sustainable. If not, people will lose jobs, clients will lose coverage... basically insurance won't exist. I'd say this is why financial advisors nag like broken recorders to get coverage done early.
Financial advisors can help with preliminary underwriting
Preliminary underwriting is a form of unofficial application to find out how the insurers will assess the declared medical condition. The outcome from this preliminary underwriting application is also not official and can be subjected to more requirements in a formal application if required. Often the preliminary underwriting process provides a good indication of what is the likely outcome of such health issues. It is also possible that insurer A may reject the condition while insurer B may accept the condition on conditional/standard terms as different insurers have a differing risk appetite for different conditions. In the event of an unfavourable outcome, clients need not declare that they have been rejected by this insurer in a formal application since preliminary underwriting is unofficial.
So why don't all advisors simply do preliminary underwriting for their clients?
For starters, certain conditions like cancer, heart issues, diabetes is a standard decline case for traditional protection plans. Most experienced advisors know this without the need to go through the paperwork. In other words, it's just a waste of time. Also based on an online insurance forum thread I read, an advisor representing a single insurer basically would not have any underwriting outcome to compare with. Hence, it makes sense for him to simply apply as a proper application and then see if the prospect would like to accept the terms from the insurer.
On the flip side, my own experience as a FA seems to indicate that most clients somehow choose to not get underwritten by all the insurers. They somehow think that they don't want so many insurers to know of their medical condition. Frankly, this is unwise and totally illogical. Even if you decide to purchase another plan from an insurer you didn't do a preliminary underwriting with 5 years later, you still need to declare your condition then. It might have recovered but you still have to declare. There's no implications if you did a preliminary underwriting earlier.
In fact, the very premise of preliminary underwriting is to see which insurer can offer the most favourable terms despite the health condition raised. By excluding some insurers from this process, you essentially have opted to never find out if another insurer can give you better terms than the offer you received.
An appeal to everyone with medical conditions when applying for insurance
Please be honest. This makes the life of your financial advisor easier and it safeguards you from the risk of not being able to claim. Frankly, I have told clients who very adamantly insist that they need not declare certain conditions to find another advisor. In my view, there will be advisors who might seek to pander to such ridiculous requests. However, I am not sure if you will be able to claim should you need to utilize your insurance. Not sure what's the purpose of having an insurance where you don't know if it will work when the need calls for it. It's like carrying a faulty parachute to go sky-diving with...
Please be nice, just factually declare your health conditions and decide based on the best terms offered to you. Please do not argue with your advisor that it's not serious and it should be accepted. To begin with, your advisor is not medically trained as well. A good advisor will try to strive for the best terms for the client, but once this process is done, be reasonable. One thing I like about preliminary underwriting is the opportunity to see how multiple companies assess the same risk. If all of them are saying no, then com'on, obviously your condition is serious. I would suggest you go speak to a doctor to ask them what health complications you are at risk of.
Please provide as much information about your condition as possible. I've clients expecting advisors to magically secure good terms for them when they misplaced all their documents and forgotten all the details of their health condition. How reasonable is this request? It's like telling the lawyer to go to court and win a case for you simply on the basis you said you are innocent with zero evidence at all. Insurers want business but they need to assess risks. If you genuinely have a minor condition but is too lazy to provide any documentation proof, then the insurer have a high tendency to exclude the coverage. Simply put, it's always the safest decision to exclude an unknown risk. On the other hand, if you provide evidence that you have recovered or the condition is under control, there's a better chance the insurer may accept the application on standard terms.
If you would like to get your protection planning done, please speak with a trusted advisor. You can also drop me a message if you would like me to help you with it.
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Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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