Clients must disclose risky hobbies

Just like champion athletes, highly successful businesspeople tend to be results-oriented, disciplined, and goal-setting high achievers. They may be attracted by the adventure and precision required to excel at high-risk sports. But this can present an additional risk for the corporation they own or control.

Insuring risk

The need for key person insurance is clear, but in light of the risky activities discussed earlier, how easy is it to put in place? Life insurance companies endeavour to reduce their risk when taking on an insurance policy through a variety of means:

• pricing
• duration of products
• guarantees
• non-medical questionnaires
• medical testing and reports

As part of the non-medical underwriting procedure, the insured is asked to disclose any risky hobbies or sports. A lifestyle questionnaire specific to the activity is an additional requirement for the underwriter’s review. This document asks questions related to the person’s participation and skill level.

It is important for the insured to share all details of their sports activities with the insurer. Any omission could result in the cancellation of the policy or a denied claim on the grounds of material misrepresentation. The more details provided to support the insured’s advanced skill level or professional training, the better the opportunity to show the underwriter that the activity is a controlled risk and extra premiums may be minimized.

If the insurance company deems the activity as a significant risk, they have several options:

• decline coverage
• apply an additional premium to the policy, or
• exclude the activity for life insurance claim purposes

For the corporate owner of the policy, this is a double-edged sword. Just when they have identified a risk that needs to be managed (the key person’s life), they find themselves limited in the insurance options available. Shopping around with various insurance companies to find coverage options is worth the effort, and the best life insurance premium in these situations.

It is also good practice to stay in contact with your life insurance company over time, since involvement in high-risk sports may reduce as years advance and you may ask to have the extra premium reviewed in later years. Remember that the insurance underwriter does not look at the sporting activity in isolation, but instead as a part of the insured’s entire risk profile.

While you may not be able to resist the adrenaline rush of high-risk sports, you should regularly consider your insurance needs for corporate planning purposes to ensure the best risk-management strategies are in place.

This article was originally published on capitalmagazine.ca.

Maureen Glenn, B.A. CFP, FLMI, is Manager of Tax & Estate Planning at Richardson GMP Limited. This team of in-house experts collaborates with investment advisors to deliver customized wealth management solutions designed to address tax, estate, insurance, philanthropic and succession needs.