Understanding Your Duty Of Disclosure

The duty of disclosure is the insured person’s (or policy owner’s) responsibility to disclose all known information to the insurer when applying, increasing or extending an insurance policy. It is your duty to disclose all information that you know, or could reasonably be expected to know, which may affect the insurer’s decision to insure you or the Life Insured and on what terms.

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).

What is “Your Duty of Disclosure”?

The duty of disclosure outlines your (the Life Insured and Policy Owners) responsibilities when entering, varying or extending an insurance contract. Basically, you have to answer the application questions truthfully, accurately and to the best of your knowledge. Make sure to include any information you know, or could reasonably be expected to know, that may influence the insurer’s decision to insure you and any other Life Insured and on what terms.

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.

Duty of disclosure Insurance Contracts Act (ICA)

As enforced by the Insurance Contract Act 1984 “an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured”.

In other words, when you take out an insurance policy you are entering into a legal contract with the insurer, wherein you must disclose all relevant information, especially which you know or could reasonably be expected to know that may affect their decision to insure you.

In relation to Life Insurance, this can include your medical, family medical history, occupational or pastimes and any other relevant information.

Section 21 of the Insurance Contract Act states which information is seen as relevant:

  1. You must tell the insurance company everything you know (including that which you believe or suspect to be relevant) that may affect their decision to insure you and under what terms.

AND

  1. Even if you did not suspect something to be relevant, if a reasonable person in similar circumstances would have suspected such information to be relevant to the insurer, you must disclose this information.

When answering application questions, think about:

  • Providing a full and complete picture of your relevant information being requested.
  • Ensuring you clearly understand the questions being asked and then providing clear and detailed responses that clearly represent the truth.

When in doubt whether the information is relevant or not, rather disclose it fully.

Your responsibilities as the insured or policy owner

number-1Applying 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.

You are encouraged to add any additional information to your application form if the space provided is not enough.

number-2Obligations 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.

number-3Your 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.

How will the insurer know that I wasn’t being completely truthful?

As mentioned above, the insurer will use your application form to complete medical checks and contact your doctors to expand on your medical history prior to applying for an insurance policy.

Another tool insurers often use is searching social media and reviewing your online profiles for any discrepancies in your application form.

You know more about your specific risks than the insurer does, thus it is your responsibility to disclose all relevant information, as well as any information that a reasonable person would consider relevant to the insurer.

If you fail to comply with your duty of disclosure, the insurer may implement a number of remedies.

Remedies for non-disclosure

The remedies available to all insurers’ are the same for when a non-disclosure or misrepresentation has been committed, however, the underwriting guidelines are different for each insurer.

When a claim is lodged and the insurer is, for the first time, made aware of information that was not disclosed during your application – for example, you had cancer 5 years prior to taking out the policy – Retro Underwriting will occur.

Retro Underwriting refers to the insurer underwriting your policy again now that they have all the information that should have been disclosed during the application stage. In effect, changing your cover and the terms thereof to reflect all the information now available.

The below remedies are available to all insurers’, but because each insurer has different underwriting guidelines, the outcome of Retro Underwriting might be different, therefore their remedy may vary.

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

When does duty of disclosure cease for life insurance contracts?

In general, for life insurance policies that are guaranteed renewable, your duty of disclosure ceases at the time your policy is issued. Meaning, even if you’ve experienced a medical condition while your policy was being underwritten and assessed, you are still obligated to continue with your duty of disclosure and inform the insurer of any changes in your health. Your obligation to providing information stops once your policy has been issued and you have received your policy documents and product disclosure statement (PDS).

What is a guaranteed renewable policy?

A guaranteed renewable policy means the insurer cannot request updates to your personal information and you do not have to provide updates on your medical or professional circumstances. Even if your health has deteriorated your policy cover is guaranteed to remain the same and cannot be cancelled or downgraded by the insurer. However, you will need to fully comply with your duty of disclosure for any increases to your cover. Increase cover requests can be declined if your health has deteriorated.

  • Group policies under Superannuation are not guaranteed renewable and can be downgraded.
  • General Insurance, like car insurance, is not guaranteed renewable and the insurer will request you to reaffirm your duty of disclosure every 12 months, which you are obliged to comply with.

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.

Published: January 10, 2018

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