The woman met with an insurance adviser to review her cover – she already had a $1 million life insurance policy with one insurer and another $300,000 policy with another, but no trauma, critical illness or mortgage replacement cover.

The adviser recorded that she was working 28 hours a week as an accountant in her own company and studying part-time.

It was recommended she combine her life insurance policies with one of the existing insurers and cancel the $300,000 policy. The adviser also said she should include some trauma or critical illness cover and mortgage protection cover in case she could not work for a period of time.

The woman accepted the adviser’s recommendations. She cancelled the $300,000 policy and a new policy providing cover for trauma/critical illness commenced in October. In November she tripped and fell, injuring her back.

She submitted a claim under her trauma/critical illness insurance, stating that she had been working as an accountant for 30 hours a week. She also stated on her ACC form that she had been working for 40 hours a week.

When the insurer asked for documents to corroborate her income, she was unable to provide convincing information. The insurer then discovered that she was a full-time student. The insurer declined the claim and voided the new insurance policies but later reinstated the $1 million life policy that she had before the changes were made.

The woman complained that the advice she had received from the adviser caused her to lose the $300,000 life insurance policy that she had cancelled on the adviser’s advice. When the complaint was not able to be resolved directly with the adviser, she went to FSCL.

She told the dispute scheme the adviser had not told her she would have to provide financial statements to support any claim.

The adviser stood behind the advice he had given, saying that he gave cursory advice about the claims process, and noted that she was an accountant and he expected that she would know that audited financial statements would be needed to support a claim.

“We were satisfied that the advice to increase the cover with one insurer and cancel the smaller policy was sound advice and had not caused any loss,” FSCL said.

“Although [the client] lost the $300,000 life cover with the second insurer, because the first insurer had voided the new policy from inception, this was due to her ‘material non-disclosure or misstatement’ in not being completely truthful regarding the income she earned and was not due to anything the adviser had done.

“We were unable to determine what advice the adviser had given [the client] about the information she would need to provide to support a claim, but we explained to her that this did not appear to be the cause of her loss. It seemed to us that her loss was caused by her being unable to give the insurer the information it needed to substantiate the number of hours she was working each week.”

The client was recommended to discontinue her complaint. FSCL said, while she was disappointed, the client agreed. “You are responsible for providing your insurer with all the information they need to assess your claim. It is also important to tell your adviser your true working arrangements when you arrange cover,” FSCL said.