Understanding Your Duty Of Disclosure

Understanding your duty of disclosure in insurance law is extremely important when you:

1. Want to take out an insurance policy or
2. You want to extend or reinstate your cover or
3. You are facing a situation where your claim is potentially being denied due to non-disclosure or misinformation.

Our guide focuses primarily on how this duty of disclosure is generally applied in relation to your life insurance contract (but not all).

Your duty, however, does not require disclosure of a matter that:

• Diminishes the risk to be undertaken by the insurer;
• Is of common knowledge;
• Your insurer knows, or in the ordinary course of their business, ought to know;
• Has been waived by the insurer.

During the process of applying for, or changing, your life insurance policy the insurer is also responsible for asking relevant questions and for details that will better help them understand if they can or cannot provide you with cover.

Additionally, during the application process, the insured must not make any misrepresentations regarding the facts provided. Failure to fully disclose may lead the insurer to void the life insurance contract.

Your responsibilities as the insured or policy owner

1. Applying for an insurance policy

When applying for a policy make sure you fully answer all the questions asked and that the information you disclose is correct and honest to the best of your knowledge.

The completed application form is then sent for Underwriting, so the insurer can assess whether the applicant’s answers provide an acceptable risk to the insurance company, upon which a premium will be calculated and policy documents issued.

If you failed to answer questions or provided half-truths then your application does not accurately reflect your personal information and your claim might be voided.

The insurer generally starts their information gathering via an application form, which usually includes the following:

• Age
• Gender
• Body Mass Index (BMI) calculated using your height and weight
• Whether or not you smoke
• Units of alcohol consumed per week
• Residence
• Occupation
• Past-times
• Family history
• Medical history: The insurer will ask specific questions pertaining to your health, for example, whether you have diabetes. If answered yes, you’ll be asked to for an exact diagnosis, date of diagnosis, treatment and degree of recovery.

2. Obligations during the term of your policy

Most retail life insurance policies, like the ones LifeInsuranceDirect sells, are guaranteed renewable. Meaning, after the insurer has underwritten and issued your policy, based on the information you provided (if you’ve complied with Your Duty of Disclosure), the insurer cannot cancel or downgrade your contract as long as you keep paying your premiums for the duration of your policy.

In other words, you do not have to inform your life insurer if your health or other life circumstances change unless you are extending or varying your policy. However, if your policy is not guaranteed renewable you will need to disclose to them when your situation changes and or on policy renewal.

3. Your rights at claim time

When claiming on life insurance, the insurer will write to Medicare and the Pharmaceutical Benefit Scheme (PBS) requesting a complete list of every medical consultant you’ve seen and prescribed medications you’ve been provided. After about 6 weeks the insurer will have received all the information.

The insurance company will then use this information and write to your doctors to request your file notes from birth up to your policy inception to confirm your truthfulness regarding your medical history disclosures prior to you applying for their insurance policy.

If you failed to disclose important information or twisted the truth to gain a better premium price, the insurer is within their rights to void your contract.

What happens when I do not disclose?

Previously, insurers had a 3-year time limit from the policy inception date to walk away from the policy. This applied to Income Protection, TPD or Trauma Cover. After 3 years, the insurer had to prove fraud to void the policy or apply a variation to the insurance contract.

During 28 June 2013 changes to the ICA 1984 were brought into effect which provides insurers’ the option to walk away from a Income Protection, TPD or Trauma policy at any time for non-disclosure or after being misled, not only within 3 years from inception.

However, for Term Life Insurance (death cover) the insurer has to void the contract within 3 years of entering into it or they will need to prove fraud if the policy has been in force for longer than 3 years.

The Insurance Contract Amendment Act 2013 (ICAA) provided insurers with additional remedy options, as follows:

• Unbundling policies: Many insurers offer combined policies, for example, life cover and TPD. This key change allows insurers to treat the product as two or more separate policies. Meaning, they could void or change your TPD cover due to misrepresentation, while keeping your life cover unchanged.
• Expiration date change: If the incorrect date of birth was provided, the insurer is within their right to change the expiry date of the life insurance contract based on new and accurate calculations.
• Refusing to indemnify third-party beneficiaries: If the insurer determines that third-party beneficiaries did not comply with their obligations, the insurer does not need to compensate them during claim time.

Non- fraudulent non-disclosure refers to the insured person innocently failing to provide complete and accurate information because they either did not think to include it or did not deem it relevant.

Previously the insurer would have to show that, had they been aware of all relevant information, they would not have provided cover with to the insured or would have added exclusions to the policy. Now the insurer is able to:

• Alter the contract and offer modified terms, at any time not just within a 3-year period. Variations are dependent on re-assessing all the relevant information provided and by following underwriting guidelines.
• Reduction in sum insured: Reducing benefit to the amount of cover the insurer would have been prepared to pay had they known all the relevant information.
• Cancelling the policy from inception: Pay nothing when a claim is lodged, and treat the contract between the life insured and the insurer as though it never existed, returning all parties to their original position prior to inception.

For further information on your obligations, and remedies available, it is best to refer to the legislation

Guaranteed renewable vs cancellable life insurance

While most retail life insurance policies are guaranteed renewable, in that they cannot cancel or change your cover after you’ve officially been accepted and continue to provide your premiums, life insurance can have a cancellable contract. Although very rare, they still exist. A cancellable contract is when an insurer can decide not to renew your policy at a given point in time. Such policies are usually found in very high-risk occupations.

Duty of disclosure insurance applies to all applications, increases, variations and reinstatement applications.

Don’t even bother taking out a life insurance policy if you are not going to comply with your duty of disclosure. The effect of such an action is most likely for an insurer to treat your insurance policy as if it never existed in the first place.