One of an insurance advisor’s most important duties is to ensure any policy issued to a client is still valid on the date of delivery.

You do all the paperwork correctly, your client answers all the insurer’s questions fully and honestly, but then you must wait for the insurer to approve the policy.

The waiting time can be crucial. If there is a “change in insurability” between the time the application is completed and the time the policy is delivered, the insurer can void the policy. And under provincial insurance legislation, it is the advisor — not the insurer — who has to make certain no change has taken place.

Ken Hunter, partner at Hunter McCorquodale Inc. , a special-risk general insurance agency in Toronto, says the best way to handle this aspect of the transaction would be to have a standard “delivery form” that the client would have to sign.

This document would remind the client both of his or her responsibility to provide full disclosure, and ensure that no change in insurability has occurred, such as a change in health or the appearance of symptoms of any disease or condition.

A sample delivery form can be found on the Web site of the Peel Institute of Applied Finance at www.peelinstitute.com/Software/soft-ware.html

Most insurers don’t have delivery forms, Hunter says: “Advisors have to be aware that insurers are not necessarily acting in advisors’ best interests, so advisors have to develop their own delivery form.”

If there is a change in insurability during the waiting period and the policy is voided by the insurer, the advisor could end up facing an angry, litigious former client.

A key concern in this process is that legislators have not defined what constitutes a “change” in insurability. It’s a major issue for insurance advisors because this can leave their clients vulnerable to the whim of the insurers.

Some insurance advisors worry that even a positive change, such as winning the lottery, might be considered a change that could render a policy voidable. Positive stress is still stress.

Hunter says it would be useful if the legislation referred to a “material change.” Unfortunately, he adds, legislative revision of this kind doesn’t seem to be high on provincial insurance regulators’ list of priorities.

Another poorly understood problem with the law governing policy delivery is the difference between life policies and disability policies. The duty to notify an insurer that there has been a change of insurability during the waiting period for a disability policy does not generally exist under insurance legislation.

“It’s not in the Ontario act,” says Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd. in Campbellville, Ont.

Every province’s legislation varies somewhat, Geller says. But accident and sickness policies — under which disability policies fall — are treated differently in every province.

As a result, say Geller and Hunter, most insurance companies have inserted wording in their disability applications and policies that is similar to the legislative wording governing delivery of life policies.

Recently, Don Shaughnessy, an associate with the Protectors Group Ltd. in Peterborough, Ont., raised this problem on an insurance advisors’ discussion Web site (www.foradvisorsonly.com).

His firm faced an unusual problem when one of its clients had a heart attack while waiting for delivery of a DI policy. “What happens if we deliver the policy?” Shaughnessy asked the participants on the Web site.

Fortunately, the story turned out well for the client. He survived and his waiting period was covered by an optional interim insurance agreement. The client is collecting on the interim agreement, and he will get the benefit of the rest of the coverage, Shaughnessy says.

But interim agreements are not always used. When clients are taking out sizable policies — $300,000 or more — they often don’t want to start paying the premium until all the underwriting is done and the policy is delivered, he says.

“With DI, if there is a conditional insurance agreement, because money was collected with the application; the client is covered from the time of application or supply of medical evidence, even if health changes,” Shaughnessy says.

This differs from delivery of a life policy. If a client’s health changes during underwriting for a life policy, the policy cannot be delivered. That’s true even when an advisor takes money and the client has an interim insurance agreement, says Shaughnessy.

@page_break@“If the client died during underwriting, the estate might get paid subject to the limit specified in the interim insurance agreement —usually $300,000 or $500,000,” he adds. IE