Worried sick that cancer diagnosis will affect life insurance

Honesty is best, and only, way to ensure the policy is valid, writes Thie Convery

Q Last year, I purchased a $100,000 life insurance policy so that my two adult kids would receive a guaranteed inheritance from me when I eventually die, hopefully a long time into the future. Unfortunately, I was recently diagnosed with cancer. I don’t yet know the treatment plan or prognosis and my oncologist says it’s too early to know what the outcome will ultimately be. Do I have to let the insurance company know about the diagnosis, or should I wait until we know the prognosis? I’m concerned they will cancel the policy; is this a possibility?

A My fingers are crossed for you that the cancer was discovered early enough to ensure a good outcome and that your gift will indeed not occur for many years to come.

I can reassure you that there is no requirement for you to advise the insurance company of your diagnosis. On the other hand, you should tell your executor that the insurance policy exists. He or she ought to be advised of all aspects of your financial affairs regardless of your health status. Just the same, it is not obligatory that your executor know about the cancer diagnosis.

A life insurance policy becomes “in force” when it has been issued by the life insurance company and accepted by the owner. It can take weeks or months from the time the insurance application is completed and signed until the time the policy is issued and the owner accepts it.

Upon acceptance, the owner signs an acknowledgement that there has been no change in the situation of the life insured or owner (they can be two different people) since originally applying for the policy that could affect underwriting of it. (Underwriting is the process by which an insurance company determines if they are prepared to accept the risk of when an individual will die and if they will issue a policy on that individual.) A change could be a change in health, outstanding medical tests, the onset of new symptoms or consultation with any health care professional. Changes also include modifications in smoking status, drug use, or financial situation (such as insolvency or bankruptcy) and others.

After the owner has signed acceptance of the life insurance policy, it can only be cancelled by the person who purchased the policy or by default of the premium payment. The insurance company that issued the policy cannot unilaterally cancel it, even if there has been a change in health of the life insured after the policy has been accepted.

For the insurance policy to be valid, there must be no misrepresentation or fraud when the policy was originally applied for and accepted. That is, if someone purchased an insurance policy knowing that they had symptoms and did not seek medical care or inform the insurance company of them, or there was other medical history that was not disclosed at the time of application. This is fraudulent and the insurance claim would likely be denied at death. Therefore, it is imperative to carefully and truthfully disclose all information requested on the insurance application.

Understandably, if there is a life insurance claim soon after a policy was issued, the insurance company may seek medical records from the insured’s attending physician to confirm that there was no medical history that was withheld by the applicant. If you honestly, accurately and fully disclosed all required information on the insurance application last year when you purchased the policy, you have no need to worry whether your insurance claim will be paid at the time of your death. Fear not — all is in order. You can rest assured that the $100,000 gift to your children will occur unaffected by your recent cancer diagnosis.

Meanwhile, I wish you a lengthy, prosperous, happy, cancer-free life.