Honesty first when it comes to insurance

Henry

Honesty is a virtue. Admittedly not always. For example, if you want to surprise your spouse with a weekend trip to Wolmaransstad, it will help if you sometimes dance around the truth.

And of course – if you want to make government money disappear, you can’t just go and tell them that you’re going to do it. No, you hide it behind other things.

But on balance I think we can all agree that honesty is the way to go. The Bible calls us to it several times. And yes, of course we’re going to make mistakes (who among us hasn’t told the kids “no, there’s no more chocolate” while wiping the melted chocolate from the corners of your mouth?).

However, it is the case that a) if we want to call our politicians to a higher ethical standard it will help if we start with ourselves and b) there are certain times when it is really necessary for the truth, and nothing but the truth, not to tell.

Of course, as already mentioned above, it is always a good idea not to harm your conscience by dealing with the truth. But I really want to emphasize b) in the previous paragraph.

Think, for example, if you were to turn up in court – then good faith is valued.

Likewise if you enter into a contract. And for the purposes of this column – if you take out insurance (after all, it’s just a contract). I will primarily focus on long-term insurance (insurance of the person), but will also touch on short-term cover (insurance of assets).

As always – read, chew, and see your advisor.

Honesty above all else

The principle of honesty is a reasonable foundation of insurance. In order to underwrite you properly, and price your risk in terms of premium, the insurer needs complete information.

On the other hand, they have to provide full information about how their product would work and when they pay or not.

Now I can just hear everyone complaining loudly about insurers who don’t really like it. It’s difficult to gauge, for example, exactly what is covered and for how much is covered for something like a dreaded disease (and I’m talking here more about rarer claim events – let’s say motor neuron disease).

And one can accuse insurers of many things, but cuteness and simplicity of choice of words are not among those things.

While I can make arguments as to why this is so, I mostly share the frustration of customers with this.

However, this is an important conversation, but not the focus of this write-up (I will touch on things I feel the industry could do much better in a future column). The purpose of your honesty for you as a customer is simple: By fully informing the insurer of your medical history, you prevent problems later on.

Because, as mentioned, in the end the insurer underwrites your risk and the price you pay based on this.

The same principles apply to short-term insurance. If they ask you how much you drive a month, tell the truth.

Why is honesty so important?

In short: claims. Put a little longer: Your silence may mean that your claim is not valid in the end, and therefore not paid out. It can also have an impact on exclusions, charges and rejections.

If you mention that you have type 2 diabetes, high blood pressure and a history of heart disease, the insurer may decide that they are not going to cover you for everything.

Now: It’s probably not the outcome you were hoping for, but you know what’s even worse? To pay a premium for five years, and if you stick spoon in the roof because of your heart, the claim does not pay out because the insurer thinks there was non-disclosure.

I mentioned above that insurers determine your premium and so on based on the information you provide them. This happens in a process called underwriting.

Here, the insurer finds out whether you have, for example, broken your leg (that time you jumped from the second floor for fear of a spider), whether you suffer from long-Covid, or anxiety bothers you (because of your fear of spiders ), so on.

Then they assess whether they can insure the risk, whether they are going to load it (still cover, but make your premium more expensive), whether they are going to exclude it, or whether they are going to decline the cover altogether.

An exclusion (and I’m simplifying) works like this: The insurer gives you coverage, but not for claims arising from your existing broken leg (that time you jumped from the second floor for fear of a spider). However, if you break that leg again in a car accident, you may have a claim.

None of us are looking for exclusions. Of course not! It feels like you’re paying full price but getting less (some insurers these days give you a discount if they exclude things).

And, you probably think, that’s the most likely thing to happen.

All good points. But…

However, the insurer believes that covering it (mostly) will not be to the benefit of its existing policyholders. Not even for themselves. And to determine on an individual level what your risk is that your condition will lead to something worse or is unfathomable, or too expensive for the premiums you will have to cough up.

So if you know in advance that they are not going to cover something, or are burdened, then you can decide whether you are satisfied with it, before you accept the terms, or not, and maybe look around elsewhere. Or at least you know what they won’t pay for.

Put another way: It’s as much about protecting you as it is them.

Then be honest about your medical history if you are underwritten. In short: If they ask about it, you can remember it and certainly if there are medical records of it, tell them.

After all: discretion is the better part of valour.

On the other hand: You don’t have to mention that time in 2009 when you went to the doctor’s office with a cold (because you needed a sick note), unless, for example, it became chronic or caused complications not. Malaria? You certainly state that.

And if you’re wondering? Tell them instead.

Last thoughts

I just want to emphasize again that I am not condoning everything from the insurers’ side. There have been times when I wanted to pull my hair out over strange decisions made by underwriters.

But you can only keep your side clean and (largely) avoid surprises at the claim stage. After all, none of us pay insurance because we like the company; we pay it because, if the worst happens, we (or our next of kin) will need those claim fees.

Also important to remember: When you go through the entire process of planning with your advisor, reveal important things to them as well. This will help them better gauge what your options are.

  • Leon-Ben is a financial advisor, writer and musician of Wellington.

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