Not only can being diagnosed with a disability, serious illness, or terminal illness come as a huge shock, but it can also have a significant impact on your finances if you are forced to give up work as a result. Life insurance and critical illness cover are often taken out for practical purposes, such as covering a mortgage. However, having this in place can provide valuable financial support and help alleviate some of the stress of the situation.
The Association of British Insurers (ABI) confirmed 53,105 new life insurance claims were paid out in 2022. This is 96.9% of claims made. However, this has reduced from 97% of new claims paid out in 2021 and new claims being declined each year are now valued at an estimated £226 million.
In cases of claims being rejected, consumers are often unaware of the potentially unfair treatment they have received from their insurer and are unaware of how they can challenge this. Of all major insurers, ABI confirmed AIG, Legal and General, and Liverpool Victoria have the lowest uphold rate as shown below.
- AIG: 95%
- Legal and General: 95%
- Liverpool Victoria: 95%
This is compared to the higher uphold rates of their competitors:
- Aviva: 99.4%
- Royal London: 99.4%
- Vitality: 99.8%
- Zurich: 98%
In instances of claims being rejected, consumers have the right to challenge the decision and escalate the matter to the Financial Ombudsman Service (FOS) if they remain unhappy with their decision. In this article, we look at examples in which consumers have successfully challenged decisions from insurers with lower uphold rates.
AIG life insurance claim denied
Mrs G took out a decreasing term insurance policy with critical illness cover in October 2013 through an independent financial advisor. The policy provided an initial cover of £33,000 over a term of 11 years. In May 2015, Mrs G was diagnosed with skin cancer and submitted a claim to AIG. However, this was declined on the basis that Mrs G did not disclose her full medical history. They suggest that had they received her full medical history, they would have included an exclusion in her policy. Upon declining this claim, AIG cancelled Mrs G’s policy. Mrs G challenged this, and the matter was escalated to FOS.
The FOS reviewed this claim and concluded it was a case of careless misrepresentation. In instances such as this, the misrepresentation arises from insufficient care. This includes anything from an oversight or an inadvertent mistake. The FOS felt that Mrs G should have answered some application questions differently based on her medical history. However, they also believed it was likely that she misinterpreted the question, resulting in an unintentional misrepresentation.
The complaint was upheld in favour of Mrs G. AIG was instructed to reinstate Mrs G’s policy with the reduced premium and the relevant exclusion. AIG was also instructed to settle the complaint and provide £250 compensation.
Legal and General critical illness claim rejected?
In 2012, Mr A took out two insurance policies through an adviser at a bank. One provided life and critical illness cover and the other just life cover. He fell ill and submitted a critical illness claim to Legal and General. Legal and General investigated the claim and found he hadn’t disclosed he was a smoker when he applied. If he had done so, it said it wouldn’t have offered cover on the same terms.
Mr A challenged this decision. The FOS reviewed the complaint and upheld it in favour of Mr A. They concluded that it was not clear Mr A deliberately or recklessly misled the insurer. They advised that Mr A took the policy out via an advisor, without knowing exactly what question the adviser asked and if his answer was recorded correctly. They therefore felt it was unfair to suggest Mr A deliberately tried to mislead anyone.
FOS instructed Legal and General to restore the position that Mr A would have been in if the right information had been provided. In this case, he would have been offered cover based on smoker rates. This includes a lower amount of cover for the premium he paid. Legal and General were instructed to reinstate this policy and review the claim as if there had been no misrepresentation. Mr A was also awarded £500 compensation.
Liverpool Victoria life and critical illness policy cancelled
Mr and Mrs M applied for a joint life and critical illness policy in July 2013. This was accepted on 11 July 2013 and the policy started on 8th August 2013. In September 2013, Mr and Mrs M submitted a revised application form. This confirmed Mr M had been signed off work on 8 August 2013 with acid reflux.
Upon submitting this, Liverpool Victoria also discovered that Mr M saw his GP for reflux symptoms and was prescribed medication on 5th August 2013. It said he should have disclosed this information before the policy started and had it known about this, it would have postponed the policy until Mr M’s health position had been clarified. As such, it cancelled the policy and refunded the premiums paid.
Mr and Mrs M challenged this decision, and the matter was escalated to the FOS. The FOS concluded that there was no evidence for major concern until Mr M’s GP visit on 5th August 2013. The FOS noted that individuals suffer from indigestion-type symptoms. These will include such things as heartburn and acid reflux. They often resolve quickly and the NHS Choices website states most people with such symptoms will not need to see their doctor and can take action such as changing diet or taking an antacid.
The FOS concluded Mr M had no initial reason to disclose his symptoms to Liverpool Victoria. Based on the facts, FOS advised this was a case of innocent misrepresentation. FOS decided in favour of Mr and Mrs M, instructing Liverpool Victoria to reinstate the policy.