In March this year, I had a client who came to me for insurance advice. Looking at his insurance portfolio, he had an ILP and a dollar-cap H&S plan. He disclosed to me that he had a pre-existing condition. I call that pre-existing condition A (to protect the confidentiality of the person). I recommended him a replacement of his ILP with a limited premium whole life and dollar-cap H&S plan. His ILP will become a huge liability when he grows old due to ridiculous escalating mortality and morbidity charges. And his dollar-cap is insufficient for covering his hospital bills. I did not recommend disability income because he will be temporarily stopping work. Initially I thought this is a rather straightforward case. But how the sequence of events turn out was really beyond my expectations.

Anyway, the outcome of the two shield plan were out. One was better then the other. So he was happy to be covered with Insurer Z. Even his pre-existing condition A was covered by Z. The H&S policy inception started on 1 May 2007. I was very happy for him.

He decided to proceed with the purchase of the whole life plan with Insurer Y. At the beginning of April, I submitted the whole life proposal to Insurer Y. Insurer Y calls for a clinical abstract to find out about condition A. And so I arrange for the clinical abstract report. The clinical abstract report was received by Insurer Y at the end of April.

Around second week of May, Insurer Y asks for a routine medical examination. I arranged for that. However, it was discovered in that routine medical examination that he has another but previously unknown pre-existing condition B. He panicked. I also had to do some quick thinking. As the medical exam cannot provide 100% assurance that condition B is not dangerous, I arrange for him to see a specialist at his own cost. Fortunately, the specialist certified that condition B was not dangerous. I submitted all the lab and doctor’s report to the insurer Y.

Today I saw in the Insurer Y’s intranet that a conditional letter of acceptance has been issued. This means that this is a sub-standard case. There will be premium loading and/or exclusion. I don’t know the details until I see the memo but it means the whole life plan with Insurer Y is not a standard policy.

Now the hard part for me: His ILP was a standard life. This whole life is a sub-standard life. What am I going to advice him? If he continues with his ILP, he is going to face disastrous consequences when he is older such as being force to terminate the plan due to gigantic insurance charges. This means eventually no more coverage when he is old. On the other hand, the whole life policy with insurer Y isn’t a standard life. I hope it is a modest premium loading. If it is going to be an exclusion, it is going to be not good.

In introspective, the insurance adviser who sold him the ILP did a terrible service. Perhaps – in the words I like to use – destroyed the client. If a proper insurance protection plan was installed, this situation would not have occurred. But it is too late now, the person is a “sub-standard” case.

When I was discussing this case with my firm’s Insurance Specialist and the industry’s insurance guru to seek advice, we discovered that the principle of good faith was almost breached. It was fortunate that Insurer Z’s H&S incepted on 1 May. If the H&S incepted latter, I’ll have no choice but to advice the client to disclose the newly discovered condition B because this becomes a material disclosure. Since shield plan always incept at the 1st of every month, it means that if the H&S plan incepted on 1 June, I’ll have to inform Insurer Z that a pre-existing condition B was discovered in Insurer Y’s medical examination. If this had happened, it would have jeopardize the application for the H&S plan.

I am glad he is covered with an as-charged H&S plan now at standard life. I am so happy for him. When I share this with my colleagues of this incident (without telling them the client’s name of course), they were amazed how the events turn out to be. Now I feel sad for the client. I am going to have to think hard of what the path forward will be like.

I read somewhere in sgfunds.com of someone who talks about DIY (do-it-yourself) insurance. I find this ridiculous and silly. Insurance isn’t as easy as it looks. But then he expressed disappointment at some advisers who are merely salesmen out to sell products and nothing else. I think he got a point. Because appointing a wrong adviser is no different from DIY insurance. In both situations, it could end up in destruction.