Healthy Scepticism

Beware of Long Term Insurance Contracts

Back in the day some sections or circles of the Christian church ran the argument that insurance was sinful. The reasoning was based on the premise that an insurance contract represented a lack of trust in God's providence and goodness. Purchasing insurance was an unbelieving act.

The argument, although well meant, reflected a fatalistic or deterministic world view that drew upon Islamic theology more than Christian truth. The Christian faith provides strong doctrinal foundations for the rectitude of insurance contracts.

Nevertheless, care and discernment must be used when considering whether to purchase insurance, and what types of contracts to purchase. Careful consideration must be given to the company providing the service, as well as the nature of the contracts themselves. Generally speaking, contracts which offer a one-off lump sum payment are more likely to be honoured than not. Thus, life insurance, lump-sum payments for disability, health insurance, and property insurance are reasonably robust as contracts. But contracts which call for income continuance--that is, purport to provide an annuity stream for a long period of time--should be viewed with a great deal of scepticism.

In the local blogosphere two cases have come up in recent weeks. The first is Whaleoil's ongoing stoush with Fidelity Life which has cost him and his family dearly. The second is Madeleine's war with ACC, which is causing hardship in the Flannagan family. Both involve longer term income payments that the insurance company was obligated to pay, due to illness or injury of the claimant. In both cases the insurance company has taken active steps to renege on their ongoing payment obligations. The modus operandi in both cases has been to use medical "experts" (employed or contracted to the insurance company) to assess the respective injury or illness and determine that the company did not need to keep paying out.

The injured or sick party is immediately placed in a very parlous and weak position. The insurance company has deep pockets with which to purchase "expert" opinion. On its own authority it can terminate or reduce payments. The claimant must take the initiative legally to get the payments reinstated. The process can be long and costly--and by definition usually the claimant is under financial pressure. All the advantage, then, lies with the insurance company.

Income continuance insurance usually has high premium costs and the delivery of the contracted obligation is acutely uncertain. When considering this kind of insurance be very, very sceptical and cynical.

Now, of course, in Madeleine's case it is ACC--an agency of government--which appears to be playing fast and loose. One has no choice about ACC "premiums": they are extracted involuntarily via the taxation system. But this simply serves to reinforce the point: if a compulsory state agency can so easily renege on its obligations through what appears to be very sharp practice, then one should be even more sceptical about self-interested private business corporations.