I was recently asked to review a provider’s policies and came across a provision I’ve not seen in other providers products.
As an adviser making a recommendation, you are really recommending clients enter into a contract (policy document) with their insurer. It’s important to understand uncommon contractual provisions, that could result in poor outcomes for clients. Good conduct probably requires that you disclose them, and their potential consequences, to your client should you consider recommending that particular provider’s product.
Provisions in policies that give insurers powers are there for a reason and can’t be ignored by advisers.
So, I’ve decided to hunt for more strange and unusual provisions that advisers should be aware of. Strange and unusual because they don’t appear to be commonplace in other provider’s policies and I’ll write about them if I find them.
For now, the provision I’m concerned about, appears to apply to all types of cover but is particularly relevant for Income Protection, Mortgage Repayment insurance and Total and Permanent Disability Cover.
This instance is really a combination of two provisions.
- The policy wording requires that the policyholder comply with all their obligations under the policy (and if they don’t the provider can cancel their policy). Nothing especially concerning here, but wait for the second provision…
- One such policyholder obligation is to advise the provider if the life insured’s occupation changes ‘…as it may affect your premiums and or exclusions on your policy.’
Unfortunately, nothing in the wording says a change in occupation might result only in a reduction of premium payable. Contractually the insurer appears to have the right to increase premium and add or alter exclusions if the life insured’s occupation changes.
Whatever the outcome might be, policyholders are obligated to comply with this requirement, failing which their policy could be cancelled. This all seemingly permitted under the contract.
This combination of provisions creates issues for advisers, not least of which is to regularly remind the client to advise their insurer immediately if their occupation changes (or that of any other life insured on their policy).
The insurer concerned does not appear to stipulate a time limit for notifying a change in occupation, in which case, notification within a ‘reasonable time’ probably applies. I wonder what the insurer would regard as a reasonable time?
Imagine, for one moment, assisting your client with their claim in circumstances where their occupation has changed and they have not notified the insurer!
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