Beware the (Non) Advice you Receive - Arthur's Story
Here's a story involving a good friend of mine (Arthur) that highlights the value of receiving good advice and long term relationships. The insurance and financial services industry has seen an explosion of advisors and advisory sources over the last 10 years - primarily banks and the internet that it almost seems so simple you could do it yourself.
Roughly 6 years ago Arthur was adjusting his mortgage with his bank. The bank kindly arranged for him to review his personal insurances at the same time with a bank staff member (who is no longer there).
The upshot of which was Arthur signed up for both life cover and income protection insurance. As a former builder and now construction site manager his work could be described as quite physical.
At the time of the meeting Arthur had just injured his wrist and while not off work he was receiving treatment for it under the auspices of ACC. No worry said the bank staff member we can still get you cover it will just include an Exclusion for the wrist.
Acceptance of the Exclusion was written on to the application. As Arthur continued to complete the form the bank officer gave direction on what was important health information and what was not. So when it came to the question have you ever had an ACC claim the answer given was - "No". This was accepted by the bank staff even though they were aware he was claiming treatment at that time. Arthur also discussed the knee surgery he had undergone some 12 years earlier which ACC had paid for and he had time off work. Given he had completed an Ironman since that time "there was no need to provide details". He also had back discomfort a few years earlier but no time off work because of it. Still "not a concern".
Arthur thought he was a fit chap in his late forties who had had the odd bit of wear and tear but was still going strong. He had gone on to complete Ironman again in 2010 and 2011. The bank staff obviously concurred as the information provided to the insurer led to the policy being issued at standard premium rates.
In mid 2011 Arthur had a stumble that caused a problem with his back. ACC took the view that the back problem was degenerative and not solely caused by the fall. The outcome was they refused wage compensation and surgery costs.
Fortunately Arthur's employer has been generous enough to keep him on wages as he was able to return to work in a short period of time. However, his doctor suggested without surgery a trapped nerve could lead to permanent paralysis in his leg. At the cost of nearly $50,000 and a three month recuperation period Arthur added to his mortgage.
At least he had his Income Protection Policy which would compensate for the time off work recuperating. A claim was duly submitted and the insurer on receiving a full set of consult notes declined the benefit due to Non Disclosure at time of Application. Even worse they voided the Income Protection cover so he has no benefit for any event. The policy also says in the event of non disclosure you forfeit your premium paid.
Despite believing he had provided the bank officer with all the information on his history and completing the application form with their guidance Arthur was deemed to have not answered the questions accurately in the application. The duty of care to get it right lay with him.
About now is when I got a phone call. Despite asking for meeting notes and providing names of the bank staff at the original meeting there is no evidence available. Notes don't exist and the staff are no longer with the bank. The best we could achieve was a premium refund.
While that may seem bad enough, things have got worse for Arthur. At Christmas time he got two pieces of bad news. He broke a rib lifting a laundry basket and then in the same week was passing blood.
It turns out he has cancer in the rib and a tumour the size of a tennis ball on his kidney. He has had his kidney removed and we were hoping that was the lowest point. The surgeon however said it appears the cancer is in his lymph nodes and a recent scan showed spots on his lungs.
Arthur has not been to work since January. Fortunately his employer has kept him on payroll - which is lucky for Arthur because he sure could use his income protection cover now. So even though cancer is a totally unrelated condition to the non disclosure he has no cover.
I can't help but think that if the bank staff had done their job properly and the insurer was able to fully assess the application with all the right medical information and ACC submissions then some form of policy may well have been issued. It probably would have had a musculoskeletal exclusion but it certainly would have been useful now.
Unfortunately, organisations like banks and internet providers have tried to commoditise insurance. In addition to buying insurance with good advisors you also get good direction and an appreciation of your circumstances. As in any field, the experts are worth their weight in gold.
Have you turned in to a "Do It Yourselfer" or use providers who are not long term relationship focussed? Will the person that established your covers be there when you might need them? If not, you might want to think again about how and where you get your insurances.
Arthur's Story Continued - What Does It Really Cost and What Happens?
For those of you who read my last article you will be aware a good friend of mine, Arthur, was diagnosed with cancer at the beginning of the year. Without income protection in place, due to the lack of advice and direction he received from bank staff at the time of establishing insurance policies 6 years ago, he also faced financial pressure.
Well, unfortunately for Arthur, one of the fittest people I ever met, he was unable to outpace cancer. By the end of the July I was a pall bearer at his funeral and the Executor of his estate.
It has been an interesting exercise experiencing it all first hand. We hear a lot of terms bandied about from Will, Estate, to Beneficiaries, Executor and Probate. But what really happens when someone dies?
Well a number of things happen simultaneously and while some of them happen very quickly others have a very long time line.
In Arthur's case he had a written Will, which had been updated as recently as June this year. That was the easy bit - the Beneficiaries include his wife (married eight days prior to his death) two daughters from his first marriage as well as three grandchildren as young as three months old. So there are six people named in his Will. In respect of the grand children there are restrictions on them receiving their inheritance until they turn 25. Therefore to completely wind up his Estate will take 25 years.
His Estate is basically everything he owned, excluding his personal effects which due to the marriage were now his new wife's. This includes property, investments, bank accounts, car, etc. The Executor is responsible for handling the Estate until it is all paid out. So, on the one hand we have to liquidate or divide the current assets as well as look after that portion of the Estate that is to be paid in the future.
The bank accounts (sole signatory) of a deceased become frozen at the time of death. So while there is money there it is not available either to the family or Executor until Probate has been granted.
Probate is where the Executor of the Will apply to the High Court attesting the death of the individual and seeking permission to act on behalf of the deceased and the Estate. This can normally take 4-6 weeks.
Once Probate has been granted the Executor is able to settle outstanding accounts with various creditors - credit card companies, utilities, mortgage or land lords etc. So, all of these suppliers need to be notified and advised that payment is awaiting the court granting Probate.
Once Probate has been granted it is still not possible for the Estate to be divided up among the Beneficiaries. It is possible for the Will to be challenged by any party that is named in the Will or someone who believes they were entitled to or promised part of the Estate. A challenge can be made up to six months after death. Therefore it is not possible, in most cases, for an the Executor to make disbursements inside this first six months and indeed the law allows an Executor up to 12 months to act.
As you can see this leaves a significant cash flow shortage for any dependants.
A major cost that is often overlooked is that of the funeral home. Depending on whether you choose to be cremated or buried will impact on the total cost. In Arthur's case he had chosen burial. The Funeral Home Fees (and there is no complaint about their professional services) was approximately $16,000. This included $5,000 for the plot as well as $2,000 for the casket and $2,000 for food at the reception.
On top of this there is a further $5,000 - $6,000 to be expended on a Headstone. That's the cost of granite, engraving and installation.
The total final costs are probably close to $25,000 and it certainly wasn't a lavish funeral although over 400 people turned up at the church so it was quite a sizable service.
What might we consider out of all of this?
Well, if you haven't got a Will make sure you sort it out sooner rather than later. While the process is drawn out with a Will it becomes a lot messier without one.
Whoever you chose to be your Executor make sure they have the wherewithal to deal with your financial affairs. This is particularly true if you intend to delay distribution to some Beneficiaries. The Executor will be responsible for handling the investment of your Estate until it has all been dispersed. Executor is a non remuneration position so they better be a trusted and good friend!
With the delay caused by Probate it would make sense that some funds are immediately available to dependants - spouse or children. This can be achieved through joint funds or a life insurance policy payable direct to those who need it. This is achieved by having those individuals as the policy owner.
Finally, even if you have no debts death is a major financial cost. It is also inevitable, so some form of life insurance can ease the burden of those final costs.