Telling the whole truth
If you are a golfer and you exaggerate your handicap to impress your new work mates, it's highly likely that you will end up with egg on your face well before you reach the 19th hole. An errant tee shot, or time at 'the beach', and you will be quickly exposed as the social player you are. Your pride might take a hit in that instance, but it is a different story when it comes to insurance. If you fail to tell the whole truth on your insurance application, it can have serious repercussions.
What is duty of disclosure?
Duty of disclosure is about being honest when detailing your medical history, health, occupation and hobbies. And this goes for every question an insurer might ask when you apply for insurance or make a claim. More formally, it's your obligation to tell an insurer everything you know - or could reasonably be expected to know - that might influence their decision whether to insure you.
You might think about insurance as financial protection, but insurers take the opposite view and consider what kind of risks we represent. The price at which they insure us - or whether they insure us at all - reflects just how big a risk they consider us to be. Once the insurer decides to take us on, they are making a promise to pay us the amount we sought insurance for, if we make a claim.
When you make a claim, you are asking an insurer to come good on the promise they made to you when they decided to insure you. But if you breached the duty of disclosure by keeping secrets or telling falsehoods, your insurer can reduce the amount of your claim, or refuse to pay a claim or cancel your insurance policy altogether. A decision to lie or obscure the truth means the insurance company might not have to deliver on their promise, just when you need it most.
Doing your duty
The best way to meet your obligations is to tell the truth about your personal circumstances. A daredevil hobby like skydiving can increase the cost of your insurance, and in most cases you will need to tell the insurer about this. It is then the insurer's choice to work out how risky this hobby is - you might be charged a higher premium or not be covered at all.
While it might feel like you have to tell the insurer everything to make sure you are meeting your duty of disclosure, this isn't the case. There are some things you are not obligated to tell. This includes any matter;
- that might diminish the risk of the life insurer;
- that is common knowledge;
- that the insurer already knows;
- that the insurer has said they don't need to know.
This is common wording so don't be surprised if you see it in policy documents.
Why is duty of disclosure important?
When we apply for cover, the insurance company wants to know how (and how often) you put yourself at risk. To assess this, the insurance company relies on the information you provide on your occupation, present state of health, medical conditions, pastimes and potentially your financial situation. They may even ask you to provide them with permission to write to your doctor so they can confirm your health status, or you may have to undergo a full medical test with a nurse. All of this information is used to estimate how likely you are to make an insurance claim and for what amount.
The insurer can actually void your insurance claim if they find out you haven't been truthful with them. While you could possibly dispute this decision, it probably isn't something you would feel like doing as the insurable event could be stressful in its own right.