Confronting title, the short answer is when you don't review it.

The longer answer is all about the claim and it's highlighted well in this article Insurance company refuses to cover auckland mum with rare illness 

I feel for the family involved, it's not the outcome, as an insurance adviser, we like to see. It's not the outcome as a policyholder or as a human being we want either.

How did this happen?

How did this poor woman find herself critically ill and without the support of her insurance?

In very simple terms the policy she has isn't suited to the needs she currently has. And before you say no shite Sherlock, I'll explain what I mean.

Today she has a policy that is not responding. This is due to the policy not covering Guillain-Barre Syndrome. Now if we wind back the clock, the article talks about them having their cover for 20 years.

It is likely the policy was sold to them and never reviewed, or reviewed in the early days and then dropped through the cracks. Their adviser of the time retired or moved on. I don't know, I'm guessing from the many stories I've heard over the years.

What this has done has left them with a policy ticking away. It's given the illusion of cover, but it's been more of a ticking time bomb than reliable cover.

This is because the trauma policy when it was taken was limited, by today's standards, to core medical conditions considered to be traumatic conditions at the time. Paralysis, heart attack, cancer, stroke, heart bypass, maybe heart valve surgery, etc. linked to 8-12 conditions is likely but could have been up to 24.

All with pretty severe definitions that bordered on terminal illness but not quite yet.

I recall in my early days in the industry, nearly 20 years ago, thinking trauma was only one step off life cover and really was covering that gap a year or two before terminal illness kicked in.

Policies of the time didn't foresee the technological leap we've seen in the last 20 years.

They didn't respond well to stents with angioplasty when they came in in 2002/2003, all of a sudden that old policy (maybe 2 years old at the time) wasn't going to respond so well when it needed open heart surgery and a bypass to pay a claim.

Fortunately, stents and recovery from them, haven't been too traumatic, or we would have had much more noise over the years.

So take a 20-year-old policy, add not reviewed and serviced, and fast forward 20 years. Today, with the myriad of conditions and treatments, some old ones are now easy, lots of new ones that aren't, you get the drift, the old policy isn't going to respond to a lot of the conditions diagnosed today.

Which is the issue at hand with the situation in the article.

So what has happened in the last 20 years.

Well, Sovereign responding to the stent issue was the first to apply pass back of benefits, this applied to their 2001 policies onwards.

This applied to changes in policy wordings that were better for the client to claim on, provided it didn't increase the premium on the policy and the condition suffered was after the date of the pass back enhancement.

Other providers followed, but it wasn't until as late as 2011 that the majority of providers had this on their new policies, with varying timeframes on pass back of benefits. Meaning some policies before 2011, don't have passed back benefits and none before 2001.

This approach by the industry was to mitigate the situations a client might be exposed to a constricted wording that hadn't kept up.

It was also a response to reduce the movement of policies away from the insurer at a time when movement to a newer better policy was an easy thing to do, given the rate of changes the market was dealing with at the time.

So why did these clients end up where they did. Unfortunately, apathy is a good part of the problem. No, I'm not blaming them, more a case of 'I have cover and I have a busy life', is often the real reason.

Not being insurance experts, most clients with old policies have no idea that the trauma policy they hold is eroding in value even though the label on the front says Trauma. When your average client picks up a statement and goes "I have Trauma Cover" they have no idea how good it is against the policy today and stop about there with a tick.

The rub:

The challenge with reviewing Trauma covers, especially old ones, is the old ones look really cheap and cost-effective against what's available today.

The reality is they are cheap for a good reason they cover less. I recently managed a claim for a client where they had older policies, one 1999 and another 2009, all taken before they came to me with their claim in 2016.

Today's policy, different insurer but a similar premium to the 2009 policy, would have paid a full claim. The 2009 policy only paid a partial claim and the 1999 policy didn't respond at all.

Emphasising that a regular insurance review is critically important to your outcome.

The challenge in all of this, the 1999 policy is about half the premium of the same policy from the same insurer today. Which too would also respond to the claim with a full payment. The 1999 policy didn't qualify for pass backs and if it did would have struck a significant cost hurdle too.

So what should you do?

Review your cover, on a regular basis and keep reviewing it. Insurers will continue to adapt to the changing market, your cover needs to as well. Only with an adviser will you get that depth and breadth of advice you need across the market.

Give us a call or message us, we'd be happy to facilitate a review and help you find the right path with your risk management.

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