Insurance is designed to provide financial protection when life takes an unexpected turn. Whether it is life insurance, Total and Permanent Disability (TPD), trauma cover or income protection, having the right insurance in place can provide an important financial safety net for you and your family. However, holding an insurance policy does not necessarily mean you will be covered in every circumstance. Each insurance policy comes with its own terms, definitions, exclusions and eligibility requirements, and these can influence whether claims are accepted, delayed or declined.
For many people, the finer details of their insurance only become important when they actually need to make a claim. Unfortunately, that is also when misunderstandings about the policy can have the greatest impact. Understanding your cover before you need to rely on it can help reduce the risk of unwelcome surprises at claim time. Here are some of the common reasons insurance claims can be declined or run into other difficulties, and practical steps you can take to help ensure your cover remains appropriate.
Not Meeting the Policy Definition
One of the most important things to understand about personal insurance is that a claim generally needs to meet the specific definition contained within the policy.
This is particularly relevant for TPD, trauma and income protection insurance. For example, a TPD policy will set out the circumstances under which the insured person is considered totally and permanently disabled. Depending on the policy, this may involve their ability to work in their usual occupation, another occupation for which they are reasonably suited, or their ability to perform certain activities.
Similarly, trauma insurance generally covers specified medical conditions and events, but the diagnosis may need to satisfy particular criteria outlined in the policy. This means that experiencing a serious illness, injury or other difficult event does not automatically mean a particular policy benefit will be payable. Understanding the definitions that apply to your cover is an important part of knowing what protection you actually have.
Non-Disclosure or Incorrect Information
When applying for insurance, you may be asked for information about your medical history, occupation, lifestyle, financial circumstances and other factors relevant to the insurer’s assessment. Providing complete and accurate information is important. If information provided during the application process is incorrect or incomplete, it may create complications if you later make a claim.
That does not mean every mistake or omission will automatically result in an insurance claim being declined. The circumstances surrounding the information, the questions asked, the policy and the nature of the claim can all be relevant. The practical lesson is straightforward: take care when completing an insurance application and seek clarification if you are unsure what information is required. Keeping a copy of your application and policy documents can also be useful for future reference.
Policy Exclusions
Insurance policies may contain exclusions that specify particular circumstances, conditions or events that are not covered. For example, an insurer may apply an exclusion relating to a particular pre-existing medical condition following its assessment of an application. Depending on the policy and individual circumstances, exclusions may also relate to certain occupations, activities or other risks.
An exclusion does not necessarily mean the entire policy is ineffective. Rather, it limits the circumstances in which a particular benefit may be payable. This is why it is important to understand any exclusions when taking out a policy rather than discovering them for the first time during a claim. If your circumstances have changed significantly since your cover was established, it may also be worth reviewing whether your existing insurance continues to meet your needs.
The Policy Was No Longer in Force
A policy generally needs to be active when the insured event occurs for a claim to be considered under that cover. Insurance can lapse or be cancelled for various reasons, including premiums not being maintained. Insurance held through superannuation can require particular attention because changes to your super account, employment or insurance arrangements may affect the cover you hold.
It can be easy to assume that insurance established several years ago is still operating exactly as it did when it was first put in place. Regularly reviewing your policies can help you confirm what cover remains active, how premiums are being paid and whether the arrangements continue to suit your circumstances.
Waiting Periods and Eligibility Requirements
Some types of insurance include waiting periods or other eligibility requirements that affect when benefits can begin. Income protection is a common example. A waiting period is generally the period you must be unable to work, subject to the terms of your policy, before benefits become payable. Policies may also have a benefit period, which determines the maximum period for which benefits may continue if the relevant conditions are met.
These features can have a significant impact on how your insurance works in practice. When reviewing income protection, it is therefore worth looking beyond the headline benefit amount. Understanding the waiting period, benefit period, definitions and other policy conditions can give you a much clearer picture of how the cover may support you if you are unable to work.
Problems With the Claims Process
Not all difficult or lengthy insurance claims are declined. Claims can sometimes be delayed because an insurer requires additional information before making its decision. This could include medical records, reports from treating doctors, financial information or evidence relating to your occupation and ability to work.
When you are already dealing with illness, injury or the loss of a loved one, gathering information and communicating with an insurer can feel overwhelming. A request for further evidence can also be mistaken for an indication that a claim will not be successful. If a claim becomes complicated, seeking assistance may help you understand what information is required and what happens next. Rather than abandoning a claim because the process has become difficult, it can be worthwhile getting support to work through the outstanding requirements.
How to Reduce the Risk of Problems at Claim Time
You cannot control every aspect of insurance claims, but there are steps you can take to reduce the likelihood they are declined. Start by reviewing your insurance regularly and understanding the key features of each policy, including important definitions, exclusions, waiting periods and benefit periods. Make sure your personal details and, where relevant, beneficiary nominations remain current.
It is also worth reviewing your insurance after significant changes in your life. Getting married or divorced, having children, buying a home, changing jobs, becoming self-employed or experiencing a substantial change in income can all affect the type or amount of protection you may need. Most importantly, do not assume that a policy established years ago will automatically remain suitable today. Insurance is one part of your broader financial strategy and should evolve as your circumstances, responsibilities and priorities change.
Don’t Wait Until You Need to Claim to Understand Your Cover
The worst time to discover a gap or misunderstanding in your insurance is when you or your family need financial support.
A regular insurance review gives you an opportunity to understand exactly what cover you hold, identify areas that may need attention and consider whether your arrangements remain appropriate for your current circumstances.
At Priority Advisory Group, our Life Risk Insurance team can help you review your existing policies and understand how your insurance fits within your broader financial plan. We can also support clients through the claims process if the time comes to rely on their cover.
If it has been some time since you reviewed your insurance, contact Priority Advisory Group on 1300 349 188 to arrange a conversation with our Life Risk Insurance team.
Please note the information provided within this article is general of nature and is not a personal advice recommendation. Prior to considering strategies discussed in this article we recommend you seek personal financial advice. Please be aware that, without the benefit of financial advice, you may be committing yourself to financial strategies or products that are not appropriate for your overall personal situation, needs and objectives.