Making sure life insurance works for your loved ones

DOUBLE CHECK: If you have life insurance, you should review the policy to ensure it will cater for your loved ones when you pass.

DOUBLE CHECK: If you have life insurance, you should review the policy to ensure it will cater for your loved ones when you pass.

Estate planning is a minefield, but add to it the inherent intricacies of life insurance and you have a perfect recipe for complexity and confusion.

Just this week, a friend contacted me to discuss the argy-bargy he had been having with Allianz about an insurance policy he had taken out over a decade ago.

At that time he was in a new relationship and was keen to make provision for his wife if anything happened to him. So he went online and signed up for a $500,000 life insurance policy with Allianz.

He was duly accepted and has been paying the premiums without fail since that date, even though they have been increasing as his age does.

Late last year, due to the sudden demise of a friend, he decided to find out what his wife would need to produce in the event of him dying. He was stunned at the response.

Allianz told him that at the time of the claim they would ask the estate for all of his medical records — from five years before the inception of the policy— to see if anything had been misstated in the online application.

He pointed out, “By definition, I would be dead, which means my window would have to track down all the medical practitioners I consulted prior to our marriage and then argue whether my responses were accurate. This would have to happen without any assistance from me – the one person who has knowledge of it.”

He also mentioned that the online application had been frustrating because many answers had to be answered yes or no.

For example, one question read, “Have you ever smoked?” To be honest, he had stolen a couple of cigarettes from his father and smoked them in the backyard when he was around 12, but would this really require a yes answer?

He put it succinctly, “In essence I bought a lottery ticket to solve a future problem for my wife. When we were young, the insurers made you undertake a medical. The lure of a policy without that effort is attractive, but it does come at a fearful risk.”

He then asked Allianz if he could take a medical examination now — his request was refused.

An Allianz spokesman pointed out that this is a streamlined online policy that requires no blood tests, medical examination or medical reports during the application process.

Furthermore, the product is guaranteed to the age of 99 regardless of changes in the applicant’s medical condition after the commencement of the policy. They require upon death “details of all medical centres, treating doctors, specialists and hospitals consulted by the insured person five years before the policy commenced until death.”

As for taking the medical examination now, Allianz says: “Obtaining the results of a medical examination mid-way through the policy term when no claim has been lodged would not have any bearing on the issue of disclosure at the time of policy application, which is one of the reasons that medical history is sought at the time of a claim. It may also be of no relevance at any future time when a claim was lodged”. 

It could be argued that any insurance company that offers such apparently generous application criteria is certainly within their rights to ask for the information above.

And I have no argument with that.

The lesson here is that anybody who has life insurance should make sure they are aware of the terms and conditions of that policy and take all necessary steps to ensure that any information that will be needed is readily available to their loved ones if they die.

As my friend pointed out, it would be practically impossible for his widow to locate the information that would be needed for a claim on the policy to succeed.

  • Noel Whittaker (noel@noelwhittaker.com.au) is the author of Making Money Made Simple and numerous other books on personal finance.