Every year thousands of people have their insurance claim rejected because of mistakes on their application form. The Law Commission believes this is unfair.

If you’ve ever had your insurance claim turned down because of an innocent mistake on the application form, you’re not alone. By law, insurance companies can refuse to pay your claim because of something called ‘non disclosure’. The law says that it's your duty to tell an insurer anything that might be relevant to your application. If you don't, it can turn your claim down, even if it didn’t specifically ask for the information and you answered all those it did ask honestly. Consumer groups and the Law Commission think this should change.

What the current law says
The big problem with current law is that it gives insurers the right to refuse to pay your claim if:

• You did’t give the insurance company all the information that’s relevant to your application (in the jargon, you’re required to act with the ‘utmost good faith’, which is a catch-all clause).

• This applies even if you answered all the questions on the form honestly and reasonably.

SAVVY TIP The Association of British Insurers introduced a code of practice on non disclosure at the beginning of 2009. It says that the Law Commission's proposals would give current best practice the backing of the law.

• By law insurers can refuse to pay out even if the information you hadn’t given them wasn’t relevant and wouldn’t have affected their decision to pay out. Not surprisingly, many people feel this gives insurers too much ‘wriggle room’.

SAVVY TIP: Various codes of practice have been introduced to give consumers a fairer deal, but that doesn’t solve the problem. For example, the Financial Ombudsman Service, which handles complaints that can’t be resolved by the company, asks how reasonable a question was and whether it was clear (which is more consumer-friendly than the law), but it can only force insurers to pay up to £100,000. So if your claim was higher (for example, because your house had burned down or you needed expensive medical treatment), you could still lose out.

How the law may change
If the Law Commission’s proposals become law, it would mean less wriggle room for insurers and less confusion for consumers.

• Consumers wouldn’t have a duty to volunteer information they weren’t asked for.

• Insurers would have to ask for information that they thought was relevant.

• As long as you took reasonable care in answering questions fully and accurately you could expect to get your claims paid in full. You would only get your claim turned down if you’d been dishonest or reckless.

• If you made a careless mistake when you filled out the form, the insurer could pay a percentage of the claim, in line with the approach they’d have taken had they known all the facts when you signed up to the policy.

Will this mean higher premiums?
The Law Commission says premiums would only need to go up by 10 pence for every £100 of premium, so prices shouldn’t increase.

Will it solve the problem of insurers refusing claims unfairly?
A new law would make things clearer and easier to understand but Penny O’Nions, who is SavvyWoman’s medical insurance expert, says it wouldn’t solve all the problems. “There will always be an issue because insurance contracts are drafted using insurance law terminology. If you’re talking about medical insurance, where you’re adding medical terminology on top of that, it can be very confusing.”

Advice when taking out insurance
A law change – if it comes – could be some time away. So if, in the meantime, you’re thinking of taking out an insurance policy, follow this advice:

• Tell the insurer everything even if you’re not asked. You can’t be expected to remember all the doctor’s appointments you’ve had in the last few years, so – if you’re taking out medical-related insurance - ask your GP for a printed summary. If you have any convictions that aren’t spent, tell the insurer (even if they’re very minor).

• Don’t tick any boxes without reading what you’re agreeing to. Insurers that sell via price comparison sites and online often have a box that says you agree to certain statements (such as your house not having been flooded, you not having a conviction or not having suffered from a serious medical illness) and these questions can vary widely.

• Don’t take the sales adviser’s word for it. If you’ve been told that you don’t need to provide information, for example, about a previous illness or claim, ask the adviser to put this in writing. Insurers ask far more questions when they come to make a claim than when they sign you up as a customer.

• Take advice. You probably wouldn’t sign a legal contract without taking advice from a solicitor but many of us buy insurance without getting expert advice. Talk to a broker or financial adviser who specialises in this area. It’s particularly important for ‘long term’ contracts such as income protection insurance or critical illness cover.

SAVVY HELP: If you have a question about medical or health-related insurance, why not contact Penny O’Nions, who’s a former doctor and independent financial adviser and if it's household, travel or motor insurance, why not contact Jill Fletcher from brokers WB Baxter? Both are on SavvyWoman's panel of experts and you can put your question by clicking here.