When applying for insurance, the principal of utmost good faith applies. The Latin equivalent of 'utmost good faith' is uberrima fides.
The principal of utmost good faith or Uberrima fides means you have to declare all material information – those you know and ought to know. If in doubt, just declare it. You cannot go wrong “over declaring” it but you can go very wrong if you do not declare it. In the event that you did not declare a material information, your insurer can avoid the entire contract and thus render the contract null and void. This will result in you having no coverage even for those illnesses that is unrelated to the non-declaration.
Non-declaration of material information is known as the breach of good faith. This can be so serious that if you think you have something important to disclose – you should disclose it even if you are not asked in the questionnaire. It is not sufficient to declare to the financial adviser. You must declare it in the proposal form
One mistake that many people make is to fully rely on the questions in the proposal form to answer their health declaration. The questions in the proposer form are merely a guide. Even if the questions do not ask for it, you should always disclose it.
Just one month ago, my client told me she had a motor accident 8 years ago resulting in a brief coma. She has fully recovered since and currently receives no medical treatment. When I looked at the questions in the proposal form of the life insurance product which she was buying from me, surprisingly there was no specific questions she should declare her accident. This is because majority of the health questions were time specific such as health related matters within the last 5 years. The closest was the following question but the accident was more than 5 years ago. So technically speaking, the answer to this question is a "No":
“Within the last 5 years have you been referred to, treated or had any investigations at hospital or clinic?”
There was also no “catch-all” question.
Since I deemed her accident as material information, I declared her accident anyway and attached all the medical reports pertaining to the 2010 accident.
And you know what? The underwriter deemed the declaration as material information as my client had to have a medical examination in which the medical examiner had to pay special attention to her head injury and any current ‘residual’.
If the information was not material, no medical examination would have been called because the sum assured was within the non-medical limit. Moreover, the fact that the underwriter wanted special attention to be paid to head injury implied that the information declared was material. This is despite the fact that none of the questions actually asked for it.
If the client applies insurance directly herself (without financial advice) and answered the questions faithfully and correctly, the head injury wouldn’t have been declared since none of the questions asked for it. What would happened in this case? Well, in this case, material information has been omitted resulting in the life policy contract being voided. The contract would be void and no claim payout will be made. That is why we always hear people complaining that “buy life insurance cannot claim one”. This is usually because there was material information that was omitted.
So, the question is what really constitute material information? Is having a flu considered material information? What happens if you broke your leg when you were 6 years old? Should you declare it? If all these small illnesses need to be declared, who can ever qualify to buy insurance?
That is why it is important to engage an experience financial adviser to provide the advice.
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