Switching insurers can be risky business. Make sure you know what's involved before you change policies.
The federal government’s planned changes to financial advice laws (FOFA) has focussed attention on the big banks’ practice of promoting their own products – including insurance – to people who don’t need them or would be better off without them.
Adele Ferguson’s article in the Sydney Morning Herald tells the story of a man, Noel Stevens, who had life insurance, but was convinced by his bank’s financial planning arm to switch over to their insurer (all of the big banks have insurers). When Mr Stevens was diagnosed with terminal cancer, and made a claim, the insurer refused to pay. He took the case to Court, and won three days before he died.
Mr Steven’s sad story highlights the risks of switching insurers (such as life or disability to another).
There are two main types of risks when switching insurers
The first risk is that some insurance policies have exclusions for pre-existing conditions, or do not pay out until a waiting period has passed. What this means is, if you had a condition before you switched insurance policies, and that condition came back after you switched, you risk not being paid by your new insurer because the policy does not pay out for pre-existing conditions.
You might be able to fight the insurer in Court, but the reality is you would never have had this problem if you did not switch insurers.
The second risk of switching insurers is that the new insurer might try to cancel an insurance policy on the grounds that a person did not tell them something from their medical history. An insurer may allege ‘non-disclosure’ for example, if you had a history of mental illness but developed a condition that wasn’t related. The insurer might try to allege that because you didn’t tell them about your medical history, they don’t have to pay for the current condition.
In this case, you should get advice about whether you should fight the insurer in Court, but there would have been no problem in the first place if you had not switched insurers.
There are good reasons for switching insurers – like lower premiums, and higher benefits, but there can also be bad reasons for switching insurers – like commissions and kickbacks to salespeople and agents.
If you are considering switching from one insurer to another, you should get independent advice (and advice from a bank is not independent), read the fine print about exclusions and waiting periods, and make sure the insurer gets all the details about your medical history.