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Health Questionnaires and “Contestability”: Could Your Policy Be at Risk?

WIlliam A. McMaster
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Most private, group life and disability insurance companies require anyone applying for coverage to complete a “Health Questionnaire”.  These are usually “yes or no” questions asking whether you have ever smoked, taken drugs or been diagnosed with one of several conditions such as heart or respiratory diseases, diabetes, cancer, etc.  They are very general questions.

The purpose of these questions is to allow the insurer to decide, along with other factors such as your age and gender, whether to insure you, or what premiums to charge.  (Sometimes an insurer will also ask you to undergo a physical examination, which will involve even more questions.)  Obviously a person with a history of health problems is a greater “risk” to the insurer than a person with a good health record, and the insurer is entitled to know about anything “material to the risk” before they commit to you.

Many people rush through the application and check “no” for all the answers, thinking perhaps that it is not important, that the health problems happened years ago, or may even believe they can hide their past.  Sometimes an insurance broker or agent (or financial officer, if it is for mortgage or line of credit insurance) will check the boxes while processing the loan, saying something to the effect that “it’s no big deal”.

The problem is, the first thing an insurance company will do when a claim is submitted is get the application out and look at the answers and get health records to check whether they were true.  (Some insurers will attach a photocopy of the application to the policy itself.)

Virtually all of these types of insurance policies state that they can deny coverage if there is a significant discrepancy between what was stated on the application and what the records show.  This is called “contestability”.

These policies usually contain a provision that if the claim occurs within two years after the policy is issued, and there are any “discrepancies” between the application and the health history (or any other factor the insurer considers “material”), the insurer has a virtual absolute right to “contest” the coverage (and you get nothing).

After two years, they can still do this, but only in case of deliberate “fraud” in the application.  If you knew, for example, that you were diagnosed with high blood pressure before the application date and were taking medication for it, and answered “no” to the question relating to that, the policy could be “contested”.

The courts have said that both the insured and insurer have a duty of “utmost good faith” towards each other.  This means the insured has to disclose anything that might impact the insurer’s decision to issue (or rate) a policy.

Insurers cancel huge numbers of policies this way and save millions of dollars in payouts.  In some circumstances, you can fight these decisions.

The moral of the story here is to be sure when you apply to read all questions very carefully and, if there is any possibility that they apply to you, answer “yes”.   It may mean that the insurer will do a follow-up medical examination before they issue the policy, but it could save enormous problems when you least need them.

The content of this article or blog posting is of a general nature and does not constitute legal advice. It is not intended to be a full or complete analysis of the topic. Before applying the concepts or any content of this article or blog it is imperative that you consult your legal advisor.

Neither the author of this article or Singer Kwinter can accept any responsibility for financial loss nor gain of any nature should the reader not take advice from their legal advisor.

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