Fact Sheet
Life Insurance - Frequently Asked Questions
Q1. What are my obligations when I apply for life insurance?
Under Australian law, it is the duty of the life insurance company to give you all necessary details about the products you may wish to purchase. If you decide to apply for life insurance, the law requires you to provide the life insurer with all information about you that may affect the risk you are asking the insurer to accept. This will permit the life insurance company to undertake an accurate risk assessment of your application.
When you apply for insurance you will be asked to complete an application form and a medical questionnaire. The medical questionnaire asks for details about your personal medical history and information about any disease or disorders that are likely to increase the probability that you will make a claim. The life insurance company may also request that you undertake a medical examination. The company then decides whether or not to offer to cover you under an insurance policy.
Some of the things that insurance companies consider about your health in deciding whether or not to insure you include:
- Medical conditions you may have had in the past
- The symptoms you may have suffered
- The reasons for the medical condition
- When the medical condition was diagnosed
- Whether the condition has recurred
- Any treatment you may have received for the condition
- The medical history of your family members
- Any time you may have had off work because of the medical condition
- Whether your activities are limited by a medical condition
- Your current state of health
- The social impact of a medical condition
- Alcohol or drug abuse
Insurance companies can only consider information made available to them and must use that information to build a picture of the risk they are being asked to cover. This can be difficult to do when relying on answers to questions in application forms and on opinions provided by medical practitioners as very frequently insufficient information is provided.
You can improve the likelihood of your obtaining the insurance you desire by ensuring you give the company a comprehensive picture of your situation. More information is generally better than less information. If companies don't receive enough information to properly appraise the risk it is being asked to insure, they are unlikely to enter into a contract of life or income insurance with you.
When a policy has been issued, any subsequent changes in your health or the results of medical tests will not impact on the price you pay for your existing insurance contract. The insurance company cannot cancel or increase the price of your insurance policy because of any deterioration in your health.
Q2. What about my privacy?
The life insurance industry has a long-standing tradition of safeguarding the privacy of its customers. This especially applies to the sensitive nature of your medical information.
The protection of personal information, including health information, is vital for the continued confidence of customers in the life insurance industry. The protection of your private information has been reinforced by the introduction of national privacy legislation, which was supported by the life insurance industry. The Privacy Amendment Act (Private Sector) 2000 prescribes 10 National Privacy Principles, which came into effect on 21 December 2001. All life insurance companies must comply with these Privacy Principles.
Q3. Where should I go to get more information about the company's decision not to insure me or to change the terms of the policy by excluding some events or charging a higher premium?
We suggest you write to the Chief Underwriter of the company concerned. Set out your complaint in full and ask the Chief Underwriter to address each issue. The address can usually be found in the Product Disclosure Statement that contained your application form.
If you don't receive a satisfactory response, write to the Complaints and Disputes Resolutions Manager of the Company concerned. Every company is required to have such a person and companies must observe standards set down by the Australian Securities and Investments Commission (ASIC) in the handling of complaints, including reporting the number and type of complaint received and whether the complaint has been resolved to your satisfaction to the Australian Prudential Regulation Authority (APRA).
If you still don't receive a satisfactory response, write to the Financial Industry Complaints Service Limited ABN 64 068 901 904 (FICS) and they will liaise with the company on your behalf. Note that you must go through the company's own complaints and disputes resolution process first before FICS will get involved.
FISC can be contacted by writing to:
The Manager
Financial Industry Complaints Service Limited
PO Box 579
Collins Street West
Melbourne VIC 8007Telephone: (03) 9629 7050
Outside Melbourne: 1800 335 405 (toll free)
Facsimile: (03) 9621 2291The Financial Industry Complaints Service is an independent body and its services are free to complainants. There are some circumstances in which the Service cannot consider your complaint. The Service can advise you of these circumstances.
Q4. The company hasn't given me any information but has referred me to my doctor. What should I do?
You should ask the company to write to your doctor setting out the reasons for its decision. You might be required to put this request in writing.
Life insurance companies are not able to provide you with medical advice. They can only interpret information obtained from your doctor in accordance with their underwriting guidelines. It is better for you to discuss your medical situation with your doctor. It might be possible to get the company to change its decision if your doctor provides a more comprehensive report, particularly a report that addresses the concerns put forward by the company in its letter to your doctor. You might have to pay for such a report yourself.
Q5. The company has agreed to insure me but has excluded mental nervous disorders from the scope of cover provided. They haven't reduced the premium, however. Should I keep the policy? What use is it to me?
Unfortunately, we don't all enjoy perfect health all the time. That's why life and income insurance provides such valuable cover. Some of us are, however, more likely to suffer illness or injury than others.
Insurance benefits are designed to cover specific risks and particular acceptance parameters exist for each of these. This ensures that customers are insured on fair terms and pay a premium that reflects their likelihood of making a claim. It generally means that insurance companies can cover more people on terms that are mutually acceptable and still be around in 10, 20, 50 years or more to pay claims.
Insurance is designed to cover future events so the standard premium is what companies charge a healthy person with no pre-existing medical conditions.
When you apply for life insurance, the company underwrites your application. This means that it looks at the information provided by you, and obtains information from other sources, if necessary, in order to assess the risk associated with your application. The insurer then decides whether or not to offer to cover you under an insurance policy.
Unfortunately, there are times when companies cannot cover people without increasing the cost of the insurance (premium loading) or excluding a pre-existing condition from the cover provided.
The premium loading or exclusion relates to a statistically proven increased risk of the likelihood that a policyholder will make a claim. For example, a person who has heart problems is more likely to suffer heart disease in the future than a person who doesn't have heart problems.
Exclusions are used to remove foreseeable events or causes of claim from the cover provided. They return the risk to average. It is important to remember, however, that the policy will still cover all other events cause by unforeseeable illness or injury.
Premium loadings are payable in addition to the standard premium and are applied to take into consideration the increased chance that a claim will be made on the policy. They are also designed to return the risk to average.
In some situations, however, the company might not be able to offer to cover you on any terms. If this is the case, you should ask the company to provide you with its reasons for not accepting your application.
Q6. I have been doing everything my doctor has told me to do and feel that I am fit and well. I've never had to take time off work because of my condition. Why can the insurance company discriminate against me by refusing my application for insurance?
When you apply for life insurance, the insurer will assess the risk that you may make a claim. This process is known as underwriting and ensures that the cost of your insurance is proportional to the risk involved. It also ensures that people with the same or similar risk pay the same amount of premium. Underwriting relies on the extensive use of statistical data and actuarial estimates.
Once you have been issued with a life insurance policy, the insurance company can't change the terms under which it has agreed to insure you while you keep your policy in force by paying premiums. This means the insurance company must make a decision about the future likelihood that you might claim against the policy and in so doing must ensure it does not unfairly discriminate while protecting the financial interests of other people the company insures. This underwriting process ensures that insurance companies can cover more people on terms that are mutually acceptable and still be around in 10, 20, 50 years or more to pay claims.
If you have experienced a medical condition, whether or not that condition was disabling in the past, you are statistically more likely to need to claim against your life or income insurance policy in the future. In coming to a decision about whether to provide you with insurance and on what terms, the company can only interpret information obtained from your doctor in accordance with their underwriting guidelines. If you feel the company's decision is unfair, you should discuss your situation with your doctor. It might be possible to get the company to change its decision if your doctor provides a more comprehensive report, particularly a report that addresses the concerns put forward by the company in its letter to your doctor regarding your insurance application. You might have to pay for such a report yourself.
Q7. How do I go about finding a company that will insure me? Can one company be recommended over another?
Although life insurance companies rely on statistical data that is commonly available in designing policies to cover specific risks and the particular acceptance parameters for each of these, in the interest of maintaining a competitive industry, some companies might be more willing to enter into a contract of insurance with you than others. Companies are generally willing to give you an indication of the cover it might be prepared to offer you without you having to formally apply for a policy.
We suggest you write to the Chief Underwriter of the company concerned. You might be required to pay any costs associated with obtaining information necessary for the company to provide an opinion on your insurability. The company's address can usually be found in the relevant Product Disclosure Statement or on the company's website.
Q8. If I have been refused insurance by a company or offered cover under revised terms, do I have to tell other life insurance companies about it if I decide to seek cover elsewhere?
Under Australian law, you are required to provide the life insurer with all information about you that may affect the risk you are asking the insurer to accept. If the relevant application form asks you to disclose this information, you must do so. The company may decide to offer you insurance after considering all the facts and information made available to it, including medical reports and the information you provide in your application.