Brenda Bishop* should be dancing a jig.

A few months ago, she found a lump in her breast. Then, she spent weeks waiting for a referral to a breast cancer screening centre; then more time taking tests and getting biopsies. She spent many sleepless nights wondering about her future, her family and her mortality.

Fortunately, Brenda just found out the lab mixed up her biopsy. She never had cancer. The original test result was wrong. The lump was benign, and always had been.

Brenda was in the process of applying for a payout under her critical illness (CI) policy. She now wonders what would’ve happened if she’d received it. Would she have been expected to pay back the money?

Rigorous conditions

James Taylor of the Financial Health Management Group in Toronto states there are a number of conditions that the policyholder and her medical team have to meet before CI policies pay out.

“If the policy had been issued within two years of a claim being made, the insurance company has authorization to look at medical information pertaining to the claim [and] do a wider medical investigation to ensure full medical disclosure was provided when the policy was issued,” he says.

“It has been our experience that when a request for additional information is made to the Ontario Ministry of Health, for example, it can take a minimum of four weeks to receive a response, which could delay a claim,” he says. “Once the policy has been in force for two years, the contestability clause no longer applies.”

CI policies cover specific medical conditions, including cancer, heart attack and stroke. These are defined according to standardized industry criteria and must be diagnosed by specialists, not family doctors.

Shane Corcoran, vice president of sales and marketing for PPI Solutions in Edmonton, Alta., says that while a policy may cover up to 30 conditions, “each one has a defined level of severity and [required] diagnostic proof to qualify for a payment. This lessens the possibility of a payment made in error due to misdiagnosis.” As for the type of proof, Canada Life spokesperson Diane Grégoire says, “We would require the doctor to include all the test results and consultation reports that confirmed the diagnosis. For cancer, for example, we would ask to review the pathology report.”

Due to the level of verification required, it’s unlikely Brenda’s claim would’ve been paid before the misdiagnosis was discovered. That’s also because only specific stages of cancer are covered under CI policies.

Corcoran adds, “For the most part, the insurance providers have adopted standardized definitions, and the stage of cancer, the size, whether it has metastasized and so on is clearly outlined in the policy.”

What’s more, claims are only paid out 31 days after a specialist diagnoses the condition and the insurer receives all the related medical information.

For certain ailments, such as cancer and related conditions, no benefits are paid if the insured has any signs, symptoms or investigations leading to a diagnosis within 90 days of issue date of coverage or last reinstatement date for coverage (whichever comes later).

The timing of the 30-day waiting period can also vary depending on the medical condition covered under the contract. For example, a qualifying cancer claim may be paid 30 days after the diagnosis was made by an oncologist. In the case of coronary artery bypass surgery, however, Taylor says the waiting period begins after the surgery is completed.

The policyholder must also survive 30 days after the diagnosis to receive the payout — and that does not include time spent on life support.

Taylor adds there may not be a refund of premiums on the policy unless the claimant purchased an additional rider for the policy, depending on the carrier.

After the payout

Some policies pay small amounts early for certain cancers, such as prostate. The policy would remain in force as long as the client continued to pay premiums.

Once the policy pays out fully, it’s terminated.

“We generally do not follow up with the client after payment is made,” Grégoire says. “The possibility of an error would be rare. If the mistaken diagnosis was discovered before claim payment was made, the client would have a legal obligation to advise the insurer.”

Taylor and Corcoran agree that if subsequent fraud is determined, the insurer has the legal right to request a return of the claim amount. Normally, the insurer would issue a demand letter requesting the return of the funds.

Depending on the nature of the fraud and the dollar amount, the issuer could also contact the police to file criminal charges. If the amount is not paid, the insurer could seek a court judgment, and then attempt to garnish wages or bank accounts to recoup the funds.

However, Corcoran added, because of the detailed medical information required, there would have to be collusion between the policyholder and the specialist to provide false medical information, making CI claims more difficult to claim through fraudulent means.

Brenda’s advisor verified with the insurance provider that the critical illness claim had not been processed, and Brenda cancelled the request. Taylor adds if an insurance claim is initiated and information is not received in a reasonable period of time, the claim adjudicator will close the file.

As the majority of these contracts are unilateral in nature — as long as the premiums are paid, the contract is guaranteed to remain in force — there is no further impact on the current policy in terms of premiums.

But Corcoran cautions that if someone who had received a CI payout applied for a new insurance policy at a later date, “the medical condition which prompted the critical illness payout would be used to determine subsequent insurability.”

While both Taylor and Corcoran say anything is possible in the realm of insurance claims, none of their contacts had encountered a situation where a claim had been paid and then a subsequent misdiagnosis was found. And Grégoire says Canada Life “isn’t aware of [such] a situation.”

Taylor’s contacts state once the terms of the contract are satisfied and full payment made, the file is closed. “The insurers I talked to don’t follow up to make sure the illness was actually critical. They trust the medical information that forms the basis of the claim.”

*Brenda Bishop is a composite.

Help clients understand CI policies

No payment is made from a critical illness policy until 30 days after a diagnosis has been made by a specialist. an initial diagnosis by the primary care physician is not sufficient. a specialist is a trained medical practitioner who specializes in a specific area of medicine, such as cardiology, oncology or neurology.

  • The insurance industry has developed standard definitions of critical illnesses covered by CI policies. Those definitions encompass what medical conditions must exist, which illnesses are covered or not covered, and what specific diagnosis must exist. The policy will also specify what medical conditions are not covered. The policy document contains a detailed description of what is and is not covered. However, it is often written using detailed medical terminology, so a policyholder should seek assistance from a medical professional to determine whether a particular condition qualifies.
  • Not every medical condition is covered. For example, any non-melanoma skin cancer is not covered unless it has metastasized. If the condition is not specifically listed in the policy, it may not qualify.
  • No payment is made from a CI policy until the insured has survived the specified number of days after the diagnosis is made by the specialist. The survival period does not include days a patient is on life support and the patient must not have experienced irreversible cessation of brain function.
  • Once payment is made, both coverage and the policy terminate unless there is a second-event rider. “The rider is an option added on to a base plan of coverage not offered by all insurance companies,” says insurance specialist James Taylor. “The policy contract has an additional premium deposit for this extra protection.” For example, a major insurer’s rider offers a limited amount of coverage for a second, unrelated critical illness if the policyholder receives a payout for heart attack, life threatening cancer or stroke before age 65.
  • According to Taylor, if the patient dies during the specified survival period, no benefit will be paid. Also, unless the patient purchased a return of premium waiver, no refund will be issued.

Lisa Maccoll is an Ontario-based financial writer.