Post-Claims Underwriting

by Mr. Cheap

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Maude: Neddy doesn’t believe in insurance. He considers it a form of gambling.

(on Ned Flanders from “The Simpsons”)

Ellen Roseman recently wrote a blog post “Don’t buy insurance from banks.”  In it (and in the accompanying column) she details a couple who approached her with a problem.  They had purchased critical illness and life insurance on their mortgage in 1999, and been upfront with the bank about their health at the time and during renewals.  When the man had developed cancer and they tried to collect on the policy, TD Canada Trust denied their claim, saying it was a mistake that the policy had ever been sold to them.  Getting the situation written up in the Toronto Star shamed TD into honouring the policy, but unfortunately I’ve long had the feeling this is a common occurrence with insurance companies.

When you’re deciding who to buy insurance from, they happily promise you the world.  Benefits are pointed out and you’re lead to believe that you’re fully protected.  Even when you try to get the full details of the policy, agents try to steer you away from that and just assure you “it’s full coverage”.  When something bad occurs, suddenly the situation becomes far less certain and there are a great deal of exceptions and special cases.  Often the insurance company needs to be forced to honour the policy, either in court or by going to the press.

Post-claims underwriting, where the validity of a policy isn’t confirmed until a claim is made, is an AWFUL idea, that clearly exists to collect payments from “customers”, while keeping an escape hatch to avoid payment of any actual claims.  I’ve written before about self insuring, and behaviour like this on the part of the insurance companies is a big part of the reason that I only carry insurance protecting against CATASTROPHIC lose.  Since I currently don’t have any dependants, this is mostly protection against  liability and extreme damage in my rental condo (with the highest deductible they would allow).

The movie “Sicko”, by Michael Moore, details the failings of the American medical system.  It’s obviously a very “structured” perspective on this issue (I love Michael Moore and his movies, but you can’t take this style of work at face value).  My feeling was that the worst failings presented weren’t the fault of the government, but insurance companies being allowed to violate agreements with their customers in disgustingly immoral ways (such as the woman who was denied treatment for ovarian cancer because the insurance company claimed she was “too young” to have developed it).

In investments there is the legal principle that sophisticated parties can not make ridiculously one-side (or overly-complex) agreements  to take advantage of unsophisticated people.  Unfortunately I think this is rampant in insurance sales, where the contracts being sold are VERY complex (and intentionally so), that are being misrepresented to buyers.  Until insurance companies begin to behave (or are forced to behave) with more integrity, I’ll avoid purchasing insurance except when there’s absolutely no other choice.

Have you ever had to make a large claim on an insurance policy?  Was it easy or hard?  Did you have to fight to have the claim honoured, and if so, how?

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{ 7 comments… read them below or add one }

1 Four Pillars

This type of insurance is ridiculous – I think it should be outlawed.

There was a similar situation a couple of years ago with a car purchase – the original owner died and the spouse couldn’t collect on the “payment insurance” which was arranged through either the bank or the car dealer.

2 Mark

A couple of years ago a very close friend of mine was diagnosed with terminal cancer. He & his wife made peace with the inevitable fact and I believe I was priviliged to be able to help them through this tough period.

His life insurance on all his financials had been purchased through another friend, Ryan, who was “starting out” in the business… Well I guess you can see where this is going… The insurance didn’t want to pay; they said that he hadn’t divulged all his health “problems”… My first request was to Ryan in wanting him to let his cie know that everything had been done by the book; unfortunately, it seems that Ryan had already been “indoctrinated” by them… In all of this, although the outcome was to my friends & his wifes advantage – I have an excellent business lawyer who was willing to work this case pro bono – I also lost another friend.

When I asked Ryan what had happened to our friendship? He told me that friendship had nothing to do with his stance on the policies; I let him know that unfortunately, money, greed and the “corporate dream” had pretty much replaced his sense of honor and friendship… and I think Rob Bennett has hit a very good point in his comment…

3 Thicken My Wallet

Great post. Unfortunately, insurance companies are not in the business of insurance. They have become i-bankers who use premiums to play in the market (see Manulife’s recent troubles). One of the reasons why they are not honoring their contractual obligation is that they have lost too much money on the stock markets.

..sigh, yet another industry that needs the regulators to come down since they coudn’t control themselves.

4 Al

Even if insurance companies begin to behave with more integrity, I won’t buy insurance unless it is a necessity (liability for car, house, life and infirmity). Everything else is a rip off. It seems like every company is desperate to sell insurance on just about everything because they are making big $ on it, and those $ are coming out of consumers pockets. The FIRE economy is becoming more and more of a parasite than anything else.

5 mjw2005

add me to the club of only buying the least necessary insurance…I will only buy insurance that I legally have to (car insurance) or morally should (life insurance – if I ever have children or my wife and I have mortgage debt)….and maybe travel medical….otherwise forget it….I have never trusted insurance companies….and even though we pay a little more for car insurance in BC, I like the fact that it is government run and owned by the people….

6 brandi

My dad paid life insurance premiums from 1982 until he died in 2006, never missed a payment on his $50,000 policy (in 1982 this seemed like alot of money! I think to him). During that time, the insurance policy changed hands no less than 4 times thru various buy outs/mergers and so of course, when it came time to actually pay out they were less than cooperative (yes for the a $50,000 policy!) they requested multiple papers to be filled out by any and every doctor that had seen him (he was only 65 when he died of cancer less than a year after being diagnosed) and it was only thru diligence and many, many phone calls (made all the more difficult since my mom is deaf) that the insurance company finally paid off the $50,000 more than a year later (plus minimal interest that the government mandates for such a long delay) My dad, thought he was paying for peace of mind, for my mom, by making his insurance payments for over 25 years, but it turns out, he would have been better off investing that money himself every month and would have come out ahead with less stress and hassle.

7 EconStudent

In the US, you have not for profit insurance firms that do not have sales people.

The two that I can think of is: Vanguard Group and TIAA-CREF.

That makes buying insurance a different experience for those who can get it through Vanguard Group or TIAA-CREF.

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