Full disclosure is imperative when applying for critical illness insurance

By Tony Poland, LegalMatters Staff • Critical illness insurance provides a lump sum payout following a diagnosis of a specifically defined serious illness covered by the policy, which could include conditions such as heart attack, Multiple Sclerosis, Parkinson’s disease, stroke or cancer.

It differs from long-term disability insurance (LTD) which protects people who are unable to work on an ongoing basis due to injury or illness. LTD benefits are typically paid every month until the person is able to return to work or until they reach retirement age, says trauma-informed long-term disability and insurance lawyer Leanne Goldstein, founder of Leanne Goldstein Law.

“The big difference between the two is that with long-term disability you need to continue demonstrating an ongoing disability and an inability to work in order to be eligible for benefits,” she tells LegalMattersCanada.ca. “With critical illness, you could have a situation where you are diagnosed with a defined critical illness, you recover and return to work but you might still be eligible for a lump sum payout, having met the requirements of the policy.”

Critical illness insurance pays out a lump sum amount if the policyholder is diagnosed with a critical illness as defined under the policy and meets the requisite survival period set out in the policy.

Process could include a paramedical exam

Applying for stand-alone critical illness insurance can seem like a complicated process to a layperson, Goldstein says. Similar to an application for life insurance, the process could include a paramedical exam.

“During that examination, information such as medical history, height, weight, blood pressure and pulse will be gathered,” she says. “The exam could also include the collection of blood and urine.”

The applicant may also be expected to fill out a medical questionnaire or undergo a tele-interview, which can require the applicant to answer an extensive list of questions about past health history, says Goldstein.

The insurer then evaluates the applicant, setting the premium based on the risk factors set out in the insurer’s underwriting guidelines, she says.

“Sometimes someone will be completely uninsurable based upon their risk factors and will be denied insurance coverage,” Goldstein says. “There might also be a scenario where somebody has a higher rating because of prior medical conditions resulting in higher insurance premiums.”

May lead some people to omit pertinent details

She says the risk of higher premiums or being denied insurance coverage can lead some people to omit pertinent details about their medical history. Although this may seem like a short-term solution to ensuring coverage or lower premium payments, it can have far-reaching consequences, says Goldstein.

When a claim for critical illness insurance is submitted, the insurer will investigate the claim to determine whether payment should be made, she says, adding one of the most common denials of a critical illness claim is on the basis of a misrepresentation.

Misrepresentations are false or misleading statements that can nullify or void an insurance contract or policy, Goldstein says. It can take different forms. There can be a fraudulent misrepresentation, a negligent misrepresentation or an innocent misrepresentation, which could all lead to a denial of coverage in appropriate circumstances, she says.

When an individual is seeking insurance coverage for critical illness insurance, the insurer places the onus on the applicant to provide information. Often applicants are unaware of the extent of disclosure required and they may also be faced with ambiguous questions which they do not know how to answer.

‘Looking for a reason to deny coverage’

“As soon as a claim for critical illness insurance is made, the insurance company nitpicks through all the medical records, essentially looking for a reason to deny coverage,” says Goldstein. “If you exclude information that shows up in your medical records and it is proven to be material to the underwriting risk, your claim may be legitimately denied on the basis of misrepresentation.”

She explains that there is a common misconception that the misrepresentation must relate to the medical issue for which the individual is submitting a claim for critical illness insurance coverage. “However, it can be about any medical condition that the person had in the past,” Goldstein says. “It does not have to relate to the condition for which a claim is being made.”

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It is important to be upfront about past medical conditions,” she says. At the end of the day, it is better to have disclosed a condition that turns out to be immaterial or slightly more expensive in premiums than to omit something that could be found to be a material misrepresentation that vitiates coverage,” Goldstein says.

She says that materiality will be found if a reasonable insurer failed to insure the applicant or rated the applicant differently for premiums had it been aware of the undisclosed information.

People may innocently neglect to include history of a health issue

Because what is asked on the questionnaire can be ambiguous, people may innocently neglect to include any history of a health issue, Goldstein says.

“For example, a person may answer in the negative when asked if they have ever had a respiratory problem,” she says. “However, they may suffer from sleep apnea not realizing that it is a respiratory disorder. Had they responded in the affirmative and disclosed this information, this would have led to further inquiries from the insurer and possibly a different rating.”

It is not uncommon to come across scenarios where the applicant in a critical illness policy has disclosed information which implies, suggests or points to a possible underlying situation or condition which upon further or more expansive examination by the underwriters may have resulted in a different underwriting position, Goldstein says.

Does not necessarily nullify a claim

Neglecting to include certain medical history does not necessarily nullify a claim, she says.

“It would come down to whether the omission was material to the underwriting risk,” says Goldstein. “If coverage is declined in those cases, it would be wise to seek legal advice. Lawyers may employ contractual interpretation strategies and retain underwriting experts to determine if a claim can be contested.”

She also encourages applicants to engage and contact reputable registered insurance brokers when completing application forms and in doubt about what to include.

“There might be something in your medical history that means your premiums will be slightly higher but that is better than being denied your claim because you failed to disclose something,” she says.