As summer approaches and clients make plans to vacation outside of the country, insurance advisors may face the challenge of finding them life insurance.

Insurers are quick to decline potential risks. And the present regulatory regime supports the insurers’ unpredictable ability to void policies after a death has occurred, based on an arguable lack of disclosure from the client about potentially dangerous travel.

If your client is planning to go to the Middle East, Central America, parts of Africa or former Soviet countries in which democracy is struggling, you may find the client is facing an outright decline for coverage. Not only will the client be without life insurance coverage for the trip, but he or she will also be without coverage for life in Canada.

Behind the scenes, reinsurers prepare
quarterly lists of potentially risky countries and distribute them to carriers and companies, says Tim Fitzpatrick, president of CoVirt Inc., a Toronto-based company that provides Web-based insurance
administrative services.

If a client’s application states that a travel destination is one of the countries on the list, he or she will be declined or at least “rated” — given approval at a high premium rate.

One of the ways to mitigate the risk of a
decline is to provide more information to the potential insurer, says Fitzpatrick. You shouldn’t simply indicate that your client is intending to travel to a potentially risky country.

“Don’t just check ‘yes, my client is traveling to X country’,” he says. Instead, he suggests, write a letter on your client’s behalf indicating that his or her travel plans include using a safe airline, staying in a hotel that is part of a recognized hotel chain and moving within safe areas. It would be difficult to get a policy for someone who plans to travel by helicopter into a jungle environment in an unstable country, he adds.

However, you might refer your client to an
agency that covers special risks. “We can insure anyone for anywhere in the world — for a price,” says Ken Hunter, partner at Toronto-based Hunter McCorquodale Inc.
His firm is known as a special-risk general agency, and has insured people going into danger zones.

“We had some guys laying oil pipeline in Iraq,” Hunter says, noting that a $1-million policy for each man’s life cost $30,000. On a less glamorous level, Hunter’s company has had clients who were forced to pay high premiums simply because they wanted to visit family in Israel for one week every year.

A question that often arises as a result of the declines and high premiums is: why not sell life policies with exclusions? Clients then would have coverage here at home and they could take out supplementary insurance, such as accidental death, says Hunter.

But insurers appear to be afraid of the legal risk. “They won’t sell insurance with exclusions,” says Fitzpatrick.

Despite the fact the policies clearly exclude certain travel destinations, the companies could face lawsuits from grieving relatives, says Fitzpatrick. Even if the company was able to defeat the lawsuit, it could incur expensive legal costs.

Yet insurers issue other types of policies, such as disability and critical illness insurance, with exclusions. And life policies are issued with exclusions for dangerous activities such as flying or skydiving, Hunter notes.

Fitzpatrick is looking at developing such an exclusionary life policy for foreign travel and shopping it around to various insurers.

Hunter suggests a type of policy hybrid that would mean getting full coverage from a large domestic insurer and additional coverage for the excluded activity from a high-risk insurer such as Lloyds of London.
AXA Financial Services Inc. in Toronto is working on a policy that may resolve these issues, but Richard Pyper, vice president of business development, has declined to elaborate.

Meanwhile, says Fitzpatrick, the best strategy for clients is to have an insurance policy in place, long before any specific foreign travel plans are made. That’s because the issue of disclosure is crucial to the application process.

An insurer may not even ask about foreign travel, but under the Ontario Insurance Act, says Jim Bullock, registrar of the Toronto-based Peel Institute of Applied Finance, “an applicant is expected to disclose all his or her foreign travel plans and activities, regardless of how the travel question is asked.”