No medical underwriting insurance may be too good to be true
Medical underwriting is the process whereby insurance companies examine the medical history, demographic profile, lifestyle and various other factors that potentially relate to the client’s current or future medical status.
This information is ultimately used to determine whether or not the insurer will offer the client cover as well as the cost of the cover. However, several companies offer this service without having to undergo the medical underwriting process.
Sounds like a win-win situation, right?
Don’t be so sure. It is important to know that when an insurance company does not perform medical underwriting, one of the methods that they use to reduce risk is by applying the pre-existing conditions clause. Think of this as a type of escape clause as it allows insurers to avoid paying out a claim if the reason for the said claim is linked to a medical condition that existed before the policy started. This clause is one of the most common reasons why an insurer declines a claim.
These pre-existing exclusion clauses can be found on anything from credit life policies (insurance that covers you should you be unable to repay a debt due to death, disability, or retrenchment), funeral cover to hospital plans. Policies that have this clause are usually sold by way of telesales and the people who sell these policies often fail to fully explain this clause and how it operates, thereby resulting in a lack of clarity and misunderstanding.
It is after all insurance jargon. Based on our team’s experience with this clause, we find that complainants are usually under the impression that since there were no medical examinations or questionnaires when they initially took out the policy, their medical history or any previous conditions would be irrelevant at claim stage. Unfortunately, it’s quite the opposite and, therefore, we have put together a few hints to guide our clients.
In the case of a credit agreement, check whether or not the company that issued the credit included a credit insurance policy. People are sometimes unaware that they have purchased a credit policy when the credit is granted.
If you do have such a policy, or a funeral and/or hospital plan for that matter, check whether any of these policies have a pre-existing exclusion clause. This will ensure that there are no nasty surprises in store for your beneficiaries at claim stage. Be aware that if you had a medical condition before taking out the policy, this could impact whether or not the claim gets paid out.
The company that provides the credit (i.e., banks, finance houses, or retailers) can make the granting of the credit dependent on you taking out a life policy to cover the debt. However, you are free to choose the insurance company that provides the cover, whether you would like to take out a new policy or make use of a suitable existing policy.
Don’t be bullied or rushed into a sale! The credit providers who sell the life insurance will most probably benefit from selling the policy they suggest. This incentive will make them resistant to your attempts at using a different insurance company to provide security. Moreover, the person who sold the policy will not be there for you at the claim stage. You have the option to shop around and find a policy that best suits your needs.
Insurance is not one size fits all. The policy offered by the credit provided will probably not be the most suitable for you and may not necessarily be the cheapest either. Underwritten cover, that is when an insurer assesses your individual medical risk, is typically cheaper than a non-underwritten cover for healthy individuals. Even if you do have a pre-condition, you still may be able to take out an underwritten policy but have a loading on the premium. This is still the better option to having pre-condition exclusions.
If you do decide to go the non-underwritten insurance policy route, try to purchase a policy that has a limit on the period that the pre-existing condition clause operates.
The take home message is to firstly, know and understand the policy you have bought and, secondly, be aware of your policy’s fine print.
For more information about the pre-existing condition clause or to find out whether this clause affects you, contact a PBA financial advisor.
Phone: 011 803 9686