The Income Protection Claim and the Non-Disclosure Trap
Amara, 47, a self-employed physiotherapist, bought income protection two years ago through adviser Ben. At application she told Ben she had seen a chiropractor for recurring lower-back pain but 'it was nothing.' Ben did not include it on the form, reasoning that it was minor and would complicate the application. The policy pays 75% of income after a 30-day wait, with a five-year benefit period. Amara now cannot work for an expected nine months after a disc injury. The insurer has obtained her medical records and is investigating non-disclosure. She has $22,000 in savings, a $410,000 mortgage, and fixed business costs of $3,500 a month.
1. Assess the insurance position and Amara's immediate financial exposure.
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The claim is at risk. If the insurer establishes that the back history was material and should have been disclosed, remedies may range from claim reduction to policy avoidance, depending on the applicable regime and the insurer's assessment. Ben's decision to omit the information is the central problem: the duty to take reasonable care in disclosure rests with the applicant, but an adviser who records a known condition and chooses not to pass it on has likely breached his own obligations.
Amara's exposure is severe. With a 30-day wait and a five-year benefit period, an approved claim would pay 75% of her income for up to nine months. If the claim is reduced or declined, she must fund $3,500 of business costs plus living expenses from $22,000 - likely less than six months of cover. The mortgage continues.
Immediate steps: request the insurer's investigation timeline in writing, gather her own treatment records, and seek confirmation of what was disclosed. She should notify Ben's firm and consider a complaint through the internal dispute process, preserving the right to escalate to the external ombudsman-style body. She should also approach the lender about a hardship arrangement rather than defaulting.
2. What should Ben's firm do now, and what process failures does this reveal?
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The firm should immediately review the file, preserve all records, and assess whether the omission was a one-off or a pattern. It should notify its professional-indemnity insurer and consider whether the matter must be reported to the regulator. It should contact Amara, explain the position honestly, and not attempt to coach her account to the insurer - that would compound the problem.
The failure is procedural. A client saying 'it was nothing' is not a basis for omission; the adviser should record the condition and let the insurer decide materiality. The firm appears to lack a checklist that captures all treating practitioners, including allied health, and a second-review step before submission. It also lacks a documented explanation to clients of why full disclosure matters.
Remediation: introduce a mandatory disclosure log, train staff that minor symptoms can be material, and audit recent applications for similar gaps. The firm should also review its advice process, since the client relied on Ben's judgement and may have a claim against the firm for the lost cover.