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Unnecessary insurance?

In August 2013, Doug took out three insurance policies with Insurer 1: 

  • life cover ($80,000)
  • trauma/critical illness and temporary disability ($75,500)
  • business income protection ($1,250 per month).

Doug was later diagnosed with a health condition, for which he had some treatment. He needed medical follows ups every year, until he had two clear tests 12 months apart.

In mid-2016, Doug had a discussion with an insurance adviser as his circumstances had recently changed: he had bought a house and had a mortgage loan of $450,000, with payments of $2,200 per month. He wanted to ensure he had enough insurance.

The insurance adviser carried out an analysis of Doug’s insurance needs. She recommended the following cover for Doug with Insurer 2:

  • life cover of $525,000
  • mortgage repayment cover
  • income cover, with an exclusion for Doug’s pre-existing condition.

She recommended Doug retain the trauma/critical illness and temporary disability cover and the business income protection cover with Insurer 1 because of his existing medical condition. She suggested they review the situation in two years’ time.

Doug took out the recommended cover with Insurer 2. The life cover with Insurer 1 was cancelled, but the other two policies remained in place. 

A year later, the insurance adviser emailed Doug with the renewal notice for Insurer 2’s policies. She said Doug was welcome to contact her if he needed a review at that point, otherwise she would contact him at the two-year anniversary.

In mid-2018, the insurance adviser contacted Doug suggesting they review his cover, particularly given the health exclusion on the cover with Insurer 2. Doug replied he had been referred back to the specialist the previous year, though no treatment had been required. He needed another period of clear tests before he could seek an update to his insurance. 

In mid-2019, the insurance adviser contacted Doug again to suggest a review as he had not had a review the previous year.

Doug decided not to have a review at that point and, later in 2019, he moved to a new insurance adviser. All his policies remained in place. 

In 2022, Doug had a fall and broke his arm. He had to take time off work. With the assistance of his new insurance adviser, he made a claim for income cover with Insurer 2. There were some difficulties with his claim. Doug understood that both Insurer 1 and Insurer 2 were going to decline his claim because he had policies with both companies. He decided to cancel the policies with Insurer 1. Insurer 2 paid his claim. 

Doug complained that his original insurance adviser acted incorrectly in providing him with two competing policies which cancelled each other out. He wanted the adviser to reimburse him for the premiums he had paid to Insurer 1. The insurance adviser did not consider she had done anything wrong.

Doug complained to FSCL.

Dispute

Doug said his insurer adviser in 2016 should not have left him in the position where he had no cover if he could not work due to illness or injury. He believed that if he had policies covering the same risk, they were both invalid and he could not claim. Doug said that poor insurance advice meant he had paid premiums for eight years for unnecessary policies with Insurer 1.

The insurance adviser believed that she had acted correctly in 2016 in ensuring Doug had sufficient cover for his changed circumstances at that time, as well as cover for his existing health condition. She also noted that his new insurance adviser should have reviewed his cover and his insurance needs when he moved his insurance business to them.

Review

We noted generally, that insured people can validly have more than one policy covering the same risk. In certain cases, the insurer who pays the claim for the loss will have the right to a contribution from the other insurer. What an insured person cannot do is claim twice for the same loss.

We looked at Doug’s policies with Insurers 1 and 2. There was no prohibition in the income policies about having two policies covering the same risk. However, both had clauses saying the monthly benefit would be offset by income the insured person received from various other sources, including an insurance policy with another company covering the same risk.

Doug provided us with some of the communications between Insurer 2 and his new insurance adviser. Insurer 2 had set out calculations for both insurers to contribute to the income benefit for Doug. It seemed that Insurer 2 was of the view that both insurers could contribute to covering Doug’s claim.

In terms of the advice received in 2016, it did not seem the insurance adviser had acted incorrectly. She had arranged cover for Doug’s increased insurance needs with Insurer 2 because Insurer 1 was not able to provide the level of cover Doug now needed. Further, if Insurer 1’s policies were cancelled, he would not have cover if his pre-existing medical condition meant that he was unable to work. In their assessment of Doug’s application, Insurer 2 said they could consider a review of the exclusion for his pre-existing medical condition if there were clear results in future medical reviews.

Given this, it did not seem unreasonable for the insurance adviser to recommend that Doug retain the Insurer 1’s policies for a period of time to ensure he had enough cover while his medical condition was under review. Further, the insurance adviser remained mindful of the situation in their contacts with Doug over subsequent years.

Resolution

We explained to Doug our view that the adviser had given him suitable advice. He accepted what we had to say and discontinued his complaint.