Beware of policies with no cover for existing illness

It's the small print that counts when you want to claim from life assaurance policy, so make sure you understand it.
It's the small print that counts when you want to claim from life assaurance policy, so make sure you understand it.
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Beware of relying on a life policy offered with no questions asked about your health - you or your family can be out of pocket if your claim is rejected due to a pre-existing condition.

Judge Ron McLaren, the ombudsman for long-term insurance, in the latest OmBuzz newsletter, says it is important that you know what you are buying when you buy life assurance. It's important too, to understand that it all boils down to the wording in your policy document.

A life policy that is issued without the life company asking you any questions about your health and lifestyle, or where it makes only a few inquiries in this regard, often has a pre-existing exclusion clause, he says.

This means that you will not receive a payout from the policy if any condition you had before taking out the policy leads to a claim during the applicable period. Depending on the wording of the policy contract, the applicable period could be a stated period, or it could be for the policy's entire term.

McLaren says further that the wording of the pre-existing exclusion clause can determine whether the exclusion applies to events which are directly caused by your pre-existing condition or, claims caused directly and indirectly by the pre-existing condition.

In a case adjudicated by the ombudsman, a policyholder who had diabetes took out a life policy which also covered hospital expenses. The policy contained a pre-existing condition exclusion clause.

The policyholder stood on a rusty nail and the wound became infected, which led to him being admitted to hospital and having his right lower leg amputated.

His claim for the hospital expenses was rejected because, according to the life assurer, the cause of the hospitalisation was due to sepsis (infection) to which the policyholder's diabetes was a contributing factor. The assurer said standing on a nail was not the direct cause of his admission to hospital.

The ombudsman's office investigated and concluded that the diabetes was not the dominant cause of the hospitalisation. Rather, it was the infection that caused him to be admitted. Fortunately, the insurer agreed to abide by the decision of ombudsman's office and paid out the claim.

However, if the wording of the clause had been different, the outcome would have been different, McClaren says.

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