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For some clients, vacations can turn into financial nightmares. People may fall ill overseas, think they’re covered by their travel insurance, but then discover their claims have been denied. Trouble is, most people neither read nor understand the fine print in the exclusions and limitations section of their policies, and don’t realize they won’t be covered in certain situations.

A client of ours was on dialysis, and obtained his insurer’s permission to travel to Florida. While there, he had a severe colitis attack unrelated to his kidney failure. He underwent emergency surgery in Florida and convalesced there for several weeks. He was flown back by air ambulance. Once stable, he went to a rehabilitation hospital in Toronto.

Read: Ensure clients have adequate travel insurance

The claim was for more than $250,000, and could’ve wiped out a large portion of his retirement savings. Since his travel insurance was underwritten properly before he left, the insurer paid the entire claim. Unfortunately, most travellers don’t consider their emergency healthcare options before trouble occurs. Some simply apply for insurance through travel agents. Others rely on their credit card’s coverage.

Troubles with travel insurance

Travel insurance provides blanket coverage, so in many cases there is no real formal underwriting. Instead, when a claim occurs, the insurance company asks the policyholder questions as part of the adjudication process. During this process, they find out whether the person falls under one of the policy’s exclusions or limitations. If this is the case, the insurance never covered them and the claim is denied.

Worse, definitions are not standard. Usually, a pre-existing condition will not be covered if treatment is still ongoing. Fortunately, some contracts will cover pre-existing conditions, but those contracts can be expensive.

Read: Little-known facts about travel insurance

Stabilization is another issue. Some contracts say they’ll cover a pre-existing condition if it has been stable for 90 days or longer. So, if your client has been on the same medication for heart disease for several years without adjustments, potentially, heart disease could be a covered condition. But if she changes medication 90 days before her trip and has a heart attack while on vacation, the claim could be denied.

What to look for

The best products are underwritten at the time of application. Some of these plans cover pre-existing conditions for one year.

If a new condition arises after the policy has been issued, your client will be covered as long as it’s properly documented and she has a doctor’s note saying she’s able to travel. At renewal time, the policy will be reviewed and potentially re-priced based on any new conditions.

If the client has no existing conditions, the contract is issued immediately. But, if she answers yes to one of the condition questions, you should contact an underwriter to assess the risk at the time of application and price the policy accordingly. In most cases, the premium will increase to cover the condition.

There are also new contracts that insure people from the ages of 55 to 85, with special pricing for those over 85. The contracts are available for one year, and cover trip lengths of 30, 60, 90 or 120 days. (Clients who are likely to go away for less than a month at a time would select the 30-day length.) After the end of the year, your client would apply to renew her coverage for the next year. She may choose any trip length at that point.

Read: Trim those nose hairs: China issues travel etiquette guide

Applicants have to answer questions about issues such as:

  1. The number of medications they’re taking, and for what medical conditions;
  2. If they’ve had a heart attack, stroke and/or transient ischemic attack within the last 24 months;
  3. The number of medical conditions for which they’re receiving treatment; and
  4. Whether they’ve been diagnosed with other medical conditions.

Explain that underwritten contracts must be sold through licensed advisors, and the client might be protected through the agent’s liability coverage.

These new underwritten travel insurance products combine the best components of life, group, and property and casualty insurance. They might be more expensive than travel agent or credit card policies, but they’re well-suited for clients with pre-existing conditions.

Read: Put insurance on clients’ travel checklists

Liked this article? You may also like the client-friendly version. Read it here.

Client friendly

David Wm. Brown, CFP, CLU, Ch.F.C., RHU, TEP, is a member of the MDRT, and a partner at Al G. Brown and Associates in Toronto.

Originally published in Advisor's Edge

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