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Couple's story offers lesson in life insurance

Banks like to offer life insurance on mortgages. And coverage is often available without a medical examination. Although obtaining an insurance without medical examination is much simpler than with the examination, The risk of getting your policy being underwritten at the time of claim could leave you very exposed. 

* Here's a story of a bank denying an insurance claim – though premiums had been paid for nine years – on the grounds that key medical information had not been disclosed.

In 1979, Ros and Syd Feldman took out a mortgage with Canada Trust. In 1999, they refinanced and added more debt.

"At that time, the bank representative asked us about adding critical illness and life insurance on the policy. We told her that Syd had diabetes (first diagnosed in 1990) and that he was on pills for it," says Ros.

"We also told her that Syd had had open-heart surgery (1989) and also back surgery (1995)."

Syd wouldn't qualify for critical illness insurance, but he could get life insurance, the bank rep said.

In 2002, the mortgage was refinanced again and the same questions were asked. The couple said nothing had changed.

Last August, Syd was diagnosed with cancer of the stomach, esophagus and liver. It was Stage 4, considered to be life-threatening.

The couple asked TD Canada Trust to activate the insurance, which pays off the mortgage when a terminal illness is diagnosed.

Only at that point did the bank start looking into Syd's medical records, going back to 1999.

"They have now come back to us and said that we should not have been given life insurance," Ros said last month.

"Syd didn't qualify as he had not told them that he had diabetes. But we did. Very clearly.

"My husband is very, very ill and is undergoing radiation at Credit Valley Hospital. He does not need this additional aggravation."

The mortgage life policy was underwritten by Canada Life Assurance, but administered by TD Life Insurance.

The insurer denied the claim because of the customer's failure to disclose diabetes and other medical conditions on the insurance application form, both in 1999 and 2002.

The insurance application form says: "Your bank representative cannot answer questions about health issues. Speak to your doctor or health practitioner if you need clarification about your health."

Based on the medical records – which were checked only after the claim was made – Syd would not have been considered insurable and life insurance coverage would not have been offered, the bank said in a letter.

TD, to its credit, conducted a new investigation once the Star became involved.

On March 6, Ros heard that the mortgage would be paid out completely.

"Thank you, thank you, thank you. I feel as though a huge weight has been lifted off my shoulders," she said.

The total amount was $170,000, plus $4,500 for mortgage payments the Feldmans had made since their claim had been turned down.

This was a complicated case, said Matthew Cram, a TD Canada Trust spokesperson.

"We regret that although this customer had insurance for a number of years, the claim was not eligible for a payment under the terms of the coverage.

"However, after careful consideration of the extraordinary circumstances, and on compassionate grounds, TD Canada Trust has made the decision to forgive the outstanding mortgage."

The lesson: Banks can issue insurance and deny coverage years later if they think there was misrepresentation on an application.

So, be very clear about your health problems. And, if necessary, ask for the policy to be medically underwritten at the time you apply for it.

* Toronto Star - Saturday, June 5, 2010 Toronto Edition, By Ellen Roseman, Personal Finance Columnist