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Lapses of memory that cause insurance heartache

Last updated 05:00 15/03/2017


If you let your insurance lapse, you may find yourself out of pocket, or even ruined.


A little lapse of memory can cause a whole heap of heartache.

Lapse is industry jargon for an insurance policy being cancelled because the the premium hasn't been paid.

When a lapse happens by accident, it can cause financial heartache in a family already facing tragedy.

‚ÄčOne woman discovered a life insurance policy had lapsed as her terminally ill husband lay on his deathbed.

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She called the insurer immediately to ask for the policy, which had lapsed two months earlier, to be reinstated.

Forgotten something? Often insurers will automatically reinstate policies if premium payments come in only a few days, or weeks late.


It agreed, and the woman immediately popped a cheque in the post.


The woman said she made the call at 10am on the day of her husband's death.

The insurer said it was at 2.38pm.

The man died at 3.50pm.

The tragic events, which took place in 2006, were revealed in a case that came before the Legal Aid Tribunal late last year, a body which hears appeals from people who have been refused a legal aid loan to pay a lawyer to take their case.

One of the dead man's children was trying to sue the insurer, which refused to pay the claim on the life insurance policy.

"The insurers declined a claim on the policy on the basis that they had not been told of the father's death," tribunal member David Plunkett said in his judgement published in September.

On receipt of the woman's cheque for $56.70, the insurer reinstated the policy, which could pay out over $100,000.

But that happened three days after the man's death, Plunkett found.

"As it had not been reinstated at the time of the telephone call, it was not in force when the father passed away," Plunkett said, turning down the appeal for Legal Aid on the grounds the "prospects of success are not sufficient to justify the grant of legal aid".

There have been a scattering of cases that have come before Insurance and Financial Services Ombudsman Karen Stevens over the last two years where anguished families have sought to get an insurer to reinstate a policy, after disaster has struck.

Each teaches something about the threat to family finances from not making sure insurance premiums are paid on time.


In 2016, a woman, who had missed payments on her trauma insurance during a hectic period of her life, complained to the ombudsman.

Her policy lapsed, and she rang her insurer, which reinstated the policy after she paid the missed premiums.

A few months later, she was diagnosed with breast cancer. The insurer declined the claim on the basis that she had visited her doctor with a breast lump before the policy was reinstated.

The ombudsman said the woman argued she wasn't told she had breast cancer until the day after the policy had been reinstated.

But insurance policies do not cover pre-existing conditions, and the woman's case demonstrates that by letting a policy lapse, people run the risk of developing, or being diagnosed with a disease, before they get the policy reinstated.

The ombudsman found the insurer had acted within its rights to turn down the claim.


It's important to have two sets of eyes on family finances, doubling the chance of spotting missed premium payments.

In 2016, two years before he died of a brain tumour, a man stopped paying the premiums on his trauma insurance. Following his death, his wife made a claim. The ombudsman found there was no policy to pay a claim on.

Tragically, there was a suspicion the brain tumour may have caused him to stop paying premiums. The man's friends felt he had been acting strangely before his death, raising the question of whether his condition had changed his behaviour. The man's doctor had believed his behaviour changes were due to the stress following the Canterbury Earthquakes, the man's wife told the Ombudsman.

The doctor not having diagnosed the tumour would have meant the insurer did not have to pay anyway. The narrow policy wording required the man survive for 14 days after the diagnosis of his brain tumour for a claim to be payable.


When someone lets a policy lapse, they risk their insurer deciding not to reinstate it.

In 2015, a woman learnt the hard way that insurers are not duty-bound to reinstate a lapsed policy. She complained to the Ombudsman after her insurer had lapsed her health, trauma and total permanent disablement policy in 2013. She said no-one had told her the policy had lapsed and, in December 2013, she had asked the insurer how much she had to pay to bring the policy up to date.

She paid, but the insurer "failed to reinstate the policy", the Ombudsman found. In addition, the insurer was not required to tell the woman the policy had lapsed.


Letting a policy lapse leaves a person uninsured should something like a natural disaster strike.

In 2008, a woman missed payments on the insurance of her rental property. The insurer tried calling her, but failed to get her. It tried to get her by mail, and through her bank as well, but failed, and eventually sent her a notice that her insurance had lapsed on October 2008.

In September 2010, following the earthquake in Canterbury, the woman, who was living overseas, made a claim to the insurer for damage to the house. It declined the claim, telling her the policy had lapsed. The ombudsman found it had.

- Stuff

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