Case Study – Smoking Status


In this claims case study, the adviser shares the difficulties he encountered when lodging a claim for a client who had quit smoking prior to taking out his policy. The case study emphasises the importance of disclosure and definitions, and more significantly, the vital role a proactive and passionate adviser plays from contract to claim.


At a glance

Submitted by: Adrian McDonald
Business name: Advice & Information
Licensee: Professional Investment Services
 Male, white-collar, diagnosed with cardiomyopathy
Claim type:
Trauma and TPD


In detail

Adrian McDonald’s client was a 47 year old project manager with the City Council, with a wife and two daughters, aged nine and five. He was in a senior role with all the commitments and stress such a job entails.

“Over a few visits, I presented the explanations of Life, TPD, critical illness and income protection insurance,” McDonald recalls. “By the final visit, explaining about having part of it structured through Superannuation for cash flow purposes, he didn’t baulk at any of them. He said: ‘I want the lot’. I remember him tapping the paperwork and saying ‘I trust you, Adrian’. He wanted security for his family.”

As McDonald explains: “He was a former colleague of mine some years ago, working in education. A very nice man and we always got on well. I approached him to see if his insurance needs were up to date, since he had left an employer of 17 years and thus lost his income protection and other benefits – sick leave, long service and entitlements.”

He signed up in September 2008 and in November 2010, he was diagnosed with a heart condition known as Cardiomyopathy – a deterioration of the heart muscle, often leading to heart failure.

“For a trauma payout, Cardiomyopathy requires you to qualify under the definition Class 3, which according to the insurer entails ‘… a condition of impaired ventricular function resulting in permanent physical impairment to the degree of at least Class 3 on New York Heart Association classification on of cardiac impairment’.

“My client only had Class 2, intermittent Class 3, so he missed out on a payment of $200,000 for critical illness, but fortunately, he did qualify for a $1.7m payment for TPD Own Occupation.”

I assure clients they will never need to deal with companies or call a 1800 number

But while the claim was eventually paid out, the process proved to be less than smooth sailing, emphasising the importance of disclosure and definitions, and more significantly, the vital role a proactive and passionate adviser plays from contract to claim.

A technicality held up the process. “The question was whether he was a smoker. He had previously smoked, many years ago, but he hadn’t smoked for years,” explains McDonald. “His doctor’s notes stated he was a ‘lifetime smoker’.”

That created issues with payment and some protracted debate between the insurer and the adviser.

McDonald flew to the insurer’s Head Office to clarify the matter with the Claims Manager, and to prove his client was indeed a non-smoker.

“It took a lot of behind the scenes work,” McDonald recalls. “I explained that I had known this client since 2003 and had never seen him smoke, or even spied an ashtray in his home. But they took the doctor’s report over my word. So, I asked the insurer to clarify with the doctor the client’s smoking status at the time of application. The doctor told the insurer he was a non-smoker for at least a year prior to filling out the forms.”

The policy had  a 12 month non-smoking rate, referring to the 12 month period a person can consider themselves a non-smoker prior to the date of signing the application.

This highlights the importance of disclosure – “the warts and all approach” as Adrian refers to it.

“The onus was then on the insurer to prove he was a smoker within that 12 month period of signing the application.

“Disclosure is important, so that at the time of claim, there are no nasty surprises. The insurer goes through the client’s medical records and pharmaceutical benefits scheme records to cross check everything, to look for non-disclosure. They are in the business of paying legitimate claims, not fraudulent claims. That applies to every aspect of the paperwork about travel, health, hobbies, existing illness, family history, etc.”

The benefit of $1.7m was paid out in its entirety, where under the smoking clause the client would have only been entitled to half that amount.

“That’s a major part of my job,” says Adrian. “I complete all the forms with the client, but talking with insurance companies is solely up to me. I assure clients they will never need to deal with companies or call a 1800 number. When I do the claim, I go in to bat, boots and all, for the client and I know every aspect of their life and lifestyle – their medical history, everything.”

In this instance, Adrian’s client was very pleased. The payout took care of many financial burdens for the family, as well as covering medication and care for his condition, and putting his mind at ease over his family’s long-term security.

In a letter to his adviser, the client wrote:

“Adrian was always in close contact with me, keeping me in the loop every step of the way. As a family we were grateful to Adrian for his advice on personal income protection insurance. Little did we know we would need to make a claim within a few years.

“We cannot thank Adrian enough for his foresight in ensuring we were fully covered and for the way he handled our claims.

“Adrian has proven time and again that he is there for his clients and nothing is too much trouble.  Both his initial and ongoing advice, as well as his support have been outstanding.”