Tara A. Miller, Q.C. January 2021
With the start of the new year, we often turn our minds to getting our affairs in order for the future. This includes considering whether you need (or have enough) life insurance for your family should you die and then making sure that insurance is in place so that your loved ones are taken care of after your death. Unfortunately, simply having life insurance in place does NOT always ensure that the life insurance will be paid out after you die.
This is the first in a series of 5 weekly blog posts addressing issues that can arise with life insurance, with the goal of empowering you and your family with information to ensure any life insurance you acquire will be paid after your death. The blog series will include:
- What to do when life insurance is denied
- Understanding the difference between life insurance from a licensed life insurance company and a bank
- Tips for avoiding life insurance denial
- What to do when there is a dispute over who the life insurance beneficiary is
This week’s post provides general information on a life insurance contract and the importance of disclosing accurate and complete information when applying for life insurance.
Life insurance contracts are said to be contracts of good faith; meaning both the person who wants life insurance AND the insurance company providing the life insurance owe each other a good faith duty. The good faith duty for the person who wants life insurance means disclosing detailed information about their mental and physical conditions and lifestyle to the life insurance company. A failure to do so can result in the life insurance company denying payment of the life insurance amount after the person has died. The practical result of this denial is that loved ones are left to deal not only with the pain of their loss, but the financial and legal burden which will follow.
In Nova Scotia, there is a duty on an applicant for life insurance to disclose all material information. This duty is required by s. 185 of the Insurance Act which states:
185 (1) An applicant for insurance and a person whose life is to be insured shall each disclose to the insurer in the application, on a medical examination, if any, and in any written statements or answers furnished as evidence of insurability, every fact within his knowledge that is material to the insurance and is not so disclosed by the other.
(2) Subject to Section 186, a failure to disclose, or a misrepresentation of, such a fact renders the contract voidable by the insurer.
What is considered “material” is ultimately a matter of fact. Case law assessing what is material generally concludes that something is material if a “reasonable insurer” would have declined to issue the life insurance policy or stipulated a higher premium had they known the full detail about the matter concealed or misrepresented. As such, only significant matters will be considered material misrepresentations. “Minor indispositions of health, or minor discrepancies in respect of the insured’s family health history, or past occupation are examples of misrepresentation which are generally immaterial”.
The onus is on the insurer to prove that mis-statements were material. To do so, they will have to prove that the policy would not have been issued, and that reasonable insurance companies would have taken the same position.
A life insurance company wants to know the likelihood a person will die when they are covered under the insurer’s policy of life insurance. To do so, all who apply for life insurance are required to complete a policy application form which is typically very detailed and asks questions about medical history and lifestyle. This allows the insurance company to assess how healthy the person by asking questions about their health, their family’s health, and the activities they participate in (i.e., are you a deep-sea diver who searches for sharks?!). The less healthy an individual is, the more the life insurance company will charge for the life insurance.
Additionally, some applicants may be required (depending on a variety of factors including answers to questions on the application form, the insurers’ own requirements, and the amount of the life insurance sought) to have a detailed medical exam.
The life insurance company relies on the accuracy of the answers provided by the individual in the application – this is part of the good faith duty. It is very important to be honest and detailed in response to all these questions. Some of these questions are clear and some of these questions may not be clear. They typically involve medical language which the applicant may or may not be familiar with. Completing an application form with an experienced and licensed life insurance advisor is highly advisable.
This blog post is not meant to be legal advice or an exhaustive review of the law in this area. If you or a family member require more information, please contact MDW Law to schedule a complimentary consult with one of our personal injury and insurance law team. We regularly meet with and represent clients in the denial of life insurance claims.