1. The insured persons or policyholders might sometimes fail to disclose all their personal information to the insurance company. Will such a non-disclosure lead to the rejection of claims? What important facts must be disclosed?

1. The insured persons or policyholders might sometimes fail to disclose all their personal information to the insurance company. Will such a non-disclosure lead to the rejection of claims? What important facts must be disclosed?

The duty of good faith which applies to all insurance policies, means that the person buying the insurance policy must disclose all material facts (including personal information) in relation to the risk. This disclosure must be made to the insurance company from which the person is seeking to buy an insurance policy to cover the risk.

Note, not all kinds of information are required to be disclosed. The person looking to buy insurance policy is only required to disclose information that is “material” to the risk. Information is “material” to the risk if it is information which is relevant and important for the insurance company to take into account when assessing the risk to decide whether or not to insure the risk and to determine the amount of premium to charge for the insurance policy. For example, if the information would cause the insurance company to set a higher premium than would be the case if the information is not disclosed, then the information is material and should be disclosed. Furthermore, the duty on the person seeking insurance is not just to disclose material facts about the risk which he actually knows, but to disclose material facts which he could reasonably be expected to know and disclose.

On receiving the relevant information the insurance company will make an assessment of the risk. Based on that assessment, the insurance company sets the terms and conditions and the rate of premium to offer to the person looking to buy. This process is called underwriting the proposed insurance coverage.

A material non-disclosure occurs when the policyholder conceals or fails to disclose to the insurance company material facts that are relevant to the risk for which insurance is being sought. If there is a material non-disclosure, the insurance company will be able to avoid the insurance policy (i.e. when there is a claim, get out of having to pay the claim by handing back the premium and acting as if the insurance policy never existed). As such a material non-disclosure has serious consequences.

For example, a claim under a medical insurance policy may be rejected (and the policy avoided) if the policyholder did not disclose (prior to buying the insurance policy) that the insured person has a heart condition, as had the insurance company known that fact, it would have charged a higher premium.

Given the serious consequence a material non-disclosure can bring about, it vital that

• A person answers all the questions in the insurer’s application form as fully and as honestly as possible. It is vital a person think carefully before giving an answer.
• If a person has any uncertainty as to whether or not to disclose a particular piece of information to the insurance company, it is recommended that he err on the side of caution and disclose it.