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A key disclosure form (life)

Mr. M. had a $25,000 term life insurance policy. As the premium rates were about to increase dramatically and affordability was an issue, his insurance agent, who had originally sold him the policy, offered to research more affordable options.

This search proved a challenge. Mr. M. had health issues and, given the risks, few insurers would offer alternative coverage on a single life basis – at least, none that the consumer found affordable. At the end of the exercise, the agent proposed a joint last-to-die policy and wrote up an application for Mr. M. and his common-law partner, Ms. L.

The new policy was delivered and Mr. M. cancelled the previous one. He paid the premiums for just over two years before passing away. Ms. L. made a claim in order to pay final expenses and was surprised to have the claim denied because it was a joint-last-to-die policy. In such a policy, no proceeds are paid out until the death of the second spouse.

Ms. L. followed the insurer’s complaint process, where the insurer upheld its decision to deny the claim. She then brought her complaint to OLHI.

The Dispute Resolution Officer (“DRO”) reviewed the consumers’ documents and found anomalies in the application. The consumers’ statements in the application clearly indicated their intent to use the coverage for final expenses upon Mr. M.’s death and they designated Ms. L. and their daughter as beneficiaries – requirements that could not be met under a joint-last-to-die policy. The DRO recommended that the complaint be escalated to an OmbudService Officer (“OSO”) for further investigation.

The OSO reviewed both the file documents and the analysis from the DRO, and concurred that there were discrepancies in the sales process. He noted a lengthy delay in issuing of the policy and that there was no copy of a Life Insurance Replacement Disclosure form in the file. This disclosure form is required to be provided whenever a consumer replaces one life insurance policy with another. It provides a side-by-side comparison between the old and the new policies and serves to demonstrate that consumers understand the differences between the two policies.

Since recollections from the consumers and the agent differed, this missing form proved to be the crux of the issue.

In his detailed submission to the insurer, the OSO suggested that the lack of a properly completed replacement declaration form deprived Ms. L. and Mr. M. of the full and plain disclosure they were entitled to, and that their decision to purchase the new policy and cancel the previous one was not a fully informed one.

The OSO recommended that the insurer compensate the consumer for the loss of the $25,000 coverage provided by the original policy.

The insurer agreed to do so and the proposed payment was issued to the consumer.

Disclaimer: Names, places and facts have been modified in order to protect the privacy of the parties involved. This case study is for illustration purposes only. Each complaint OLHI reviews contains different facts and contract wording may vary. As a result, the application of the principles expressed here may lead to different results in different cases.