Jen purchases life insurance on herself thru State Farm. She purchases a $50,000

Question

Jen purchases life insurance on herself thru State Farm. She purchases a $50,000 policy. The application form is filled out to show her age as 28. In addition, the application form asks whether she has had a long list of ailments. She quickly answers no for all of them, as she is in a hurry. She does not indicate that she was diagnosed as having a heart murmur when she was 13. The policy is issued. About three years later, Jen becomes very ill and eventually dies. After a review of the policy and medical records and before the death claim is paid: 1. Jen was actually 29 at the time of the application and issuance of the policy and 2. Jen did not properly address her history of a heart murmur. Discuss whether State Farm can or cannot raise any defenses against paying the claim.

Explanation / Answer

While filling the health insurance policy form, it contains a section in which customer has to mention the complete details of pre-existing diseases. It is considered as one of the important disclosures that one has to make while purchasing a health policy. Based on this information, the insurance company decides on the pricing and eligibility of insurance. People often hide or provide incomplete information in this disclosure that results in rejection of their claims later.

In this case, Jen did not disclosed her problem of Heart Murmur while filling the policy application. Though this problem was diagnosed at the age of 13, Jen was supposed to declare the same in the insurance application. As per the current situation mentioned in the case, post 3 years of policy issuance Jen becomes very ill and dies, so Insurance company has the full right to reject the claim proposal of Jen as it was miss from her part while purchasing the policy.

Policy denial

Most of the health insurance company do not prefer to issue a health policy to an individual who has a pre-existing illness, this is the reason customers are required to define the pre existing illness while filling the application. The reason behind this is, chances of falling sick in such cases are higher, thus increasing the risk for frequent claims for insurance companies.

Premium loading

Many customers do not declare their pre exisitng illness in insurance application beacuse for insurance company a customer with pre existing illness is considered as High-Risk Customer. Premium loading is usually the scenario wherein the insurer increases your premium in order to cover additional costs that may arise due to your existing medical condition.

In this case, if Jen would have mentioned about her illness in application, there were possibilities that she had to pay the higher premium or insurance company must have denied to issue the policy for Jen.

Waiting period

There is also a condition in the health policy that insurance companies are not liable if policyholders with pre-existing medical conditions have medical emergencies due to their existing illness. This is because insurance companies keep a buffer period of two to four years, called waiting period, for pre-existing diseases. This means if waiting period for any policy is 4 years than insurer will cover his existing illness only after the policy is renewed in the fifth year.

To conclude, a pre-existing illness hikes health insurance premiums substantiall. However, it does not mean that you should hide your medical history or condition from the insurer. After all, an insurer has the right to reject your claim if you have not been true to them.

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