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Legal plan for payouts despite non-disclosure

Law Commission proposals would introduce non-contestability after three years

Proposals from the Law Commission to introduce a non-contestability period on insurance contracts could result in increased non-disclosure on application forms for life and critical-illness cover.

Under the proposals, protection providers will be forced to pay out on all claims on policies held for three years or more, assuming the claim is non-fraudulent. Even if non-disclosure is proven, claims could only be contested on these grounds within the first three years of the product.

Aegon Scottish Equitable head of underwriting Matt Rann says he is not in favour of the proposals because it could encourage non-disclosure and he believes it goes against contract principles of “utmost good faith”.

Rann says: “Are we encouraging people to take a punt on survival? The consumer could take a bet on living three years and decide not to disclose to avoid paying higher premiums. This would drive up premiums. It will change the industry radically if it is introduced.”

Scottish Widows protection marketing manager Nick Kirwan says the proposals have the potential to change the shape of the protection market. He says advisers will have to think carefully before rebroking policies and they will be less likely to if a non-contestability period is introduced.

Kirwan says: “I suspect this means the balance is tipping in favour of the consumer and I think that is right. It will give a massive injection of consumer confidence although we may be paying more claims and premiums may rise.”

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