Unknown pre-existing conditions


Unknown pre-existing conditions

Apart from tax deductions for premiums, Voluntary Health Insurance Scheme (VHIS) also provides Health Bureau-regulated coverage without lifetime coverage limit. The protection even extends to unknown pre-existing conditions and congenital diseases, which are lacking in most traditional medical insurance policies.

This article will discuss “unknown pre-existing conditions” and introduce some important insurance concepts, such as the utmost good faith principle and material facts, to help everyone feel at ease when purchasing insurance and be assured when filing claims.

Most medical insurance products on the market do not cover “pre-existing conditions”. Do you know what exactly is “pre-existing conditions”? According to the terms of VHIS, “pre-existing conditions” can be defined as conditions:

  • Already diagnosed; or
  • Have appeared obvious symptoms or signs; or
  • Have received medical advice or treatment for the illness

While unknown pre-existing conditions refer to illnesses that the insured person did not realize or did not have obvious symptoms or signs, or did not consult or receive treatment from a doctor  before purchasing an insurance. 

Before discussing this issue, we need to first talk about the utmost good faith principle and material facts.

What is the "utmost good faith principle"?

According to common law, commercial contracts must be made in good faith. The good faith principle includes general good faith and utmost good faith. General good faith means that parties of a particular contract must provide true and non-fictitious information honestly. However, they are not responsible for ensuring that the other party obtains all “important” information.

In simple terms, if the other party asks a question, you must answer truthfully, but if they don’t ask, you don’t necessarily have to disclose all information, whether it is “important” or not.

However, insurance contracts are subject to stricter utmost good faith principles. What does this mean? It means that regardless of whether the other party asks about the information, all material facts must be disclosed to the other party.

What are material facts? Any situation that may affect an insurance company’s prudent determination of premiums or whether to assume risks.

Pre-existing conditions vs. unknown pre-existing conditions

Here is a question that is often asked:

“If you have never had a physical examination and do not know if you have any abnormal physical conditions or diseases that need to be reported (such as not having a sleep test), and your answer is “you do not have sleep apnea” when you first purchase your insurance. If you discover that you have sleep apnea in the future, will it affect the claim?

Insurance companies don’t care about whether the insured person knows about their health condition or not, but they focus on whether these physical conditions or diseases existed before the policy took effect. In simpler words, is it a pre-existing condition?  

For example, if someone was hospitalized in their childhood, even if the person did not know about it, given that the hospitalization happened before the insurance was purchased, it counts as a pre-existing condition. 

Of course, this is just a special example used for better illustration of the case and most people should be aware of their physical condition or medical history.

The question is – how to determine how long this condition has existed? The insurance company will base on medical records and doctor’s diagnosis to decide its existing period. For example, if someone’s cholesterol level was found to be high for the first time during a blood test, no one can be sure whether this problem has existed for 1 day, 1 month, or longer. 

Therefore, unless there is other evidence to prove that this situation existed before. Otherwise the fairest and most reasonable approach is to treat the time of “first discovery” as the time of “first appearance”. So in most cases, problems that were not present before the person applied for insurance but were discovered after the policy took effect will be considered as appearing after the policy took effect. 

Like the case of sleep apnea mentioned above, if there is no evidence that this condition existed before, it is reasonable to answer “no” when applying for insurance. Even if sleep apnea is discovered in the future, it should not be regarded as a pre-existing condition before the insurance was applied for, and should not affect the claim.

Why are some "unknown" diseases considered "pre-existing" and not covered by insurance?

In some cases, diseases like congenital diseases (e.g. congenital heart disease) will be considered as “pre-existing” no matter when it is discovered.

Common congenital heart diseases include atrial and ventricular septal defects (also known as  leaky heart valves). Since congenital diseases are present before the insurance policy is purchased, most insurance policies have an exclusion clause that refuses to cover pre-existing diseases that existed before the policy took effect, whether the insured knew about it or not.

Example of a denied claim for a congenital disease

Here’s an example:

According to the Insurance Complaints Bureau (ICB) 2018/19 annual report, a policyholder purchased medical insurance for his 11-month-old son. 5 days after the policy was issued, the child was hospitalized for repair of his right inguinal hernia.

After being discharged, the policyholder submitted a claim for reimbursement, but the insurance company refused to make a payout on the grounds that the disease was congenital and therefore pre-existing. The policyholder then filed a complaint with the ICB.

The Insurance Claims Complaint Committee under the ICB learned from medical literature that inguinal hernia is one of the most common pediatric congenital defects that is caused by the failed closure of the testicular loop during fetal development.

The Committee ultimately agreed that the insured’s condition was congenital and supported the insurance company’s decision to deny the claim.

VHIS provides more comprehensive coverage in these cases!

In response to this, when the government launched the VHIS in 2019, it required that the coverage to include unknown pre-existing conditions and congenital conditions at the time the policy is in effect, providing customers with more comprehensive coverage and reducing disputes over insurance claims.

How much coverage is available for unknown pre-existing conditions?

According to the guidelines of the VHIS, if the insured files a claim for unknown pre-existing conditions during the waiting period, the insurance company will compensate according to the situation. The waiting period is 3 policy years, and the compensation rates for the first three policy years are 0%, 25%, and 50%, respectively.

Claim Ratio for unknown pre-existing conditions:
1st policy yearNo coverage
2nd policy yearCompensated up to the benefit limit at 25%
3rd policy yearCompensated up to the benefit limit at 50%
4th policy yearFully compensated up to the benefit limit at 100%

Though this is the basic requirement for VHIS,insurers provide even better coverage for their customers. For example, Bowtie has reduced the waiting period for unknown pre-existing conditions to:

Claim Ratio for unknown pre-existing conditions^
1st policy yearNo coverage
From the 181st day after the
policy takes effect
Fully compensated up to the benefit limit at 100%
  • ^This applies to both Bowtie's VHIS flexi plan and Bowtie Pink's VHIS.

Of course, there are also insurance companies on the market that provide full compensation for unknown pre-existing conditions in the first policy year.

However, in order to reduce the possibility of this clause being abused, Bowtie has decided to set the waiting period for unknown pre-existing conditions from the 181 st day after the policy effective date.

Misunderstandings about these concepts often lead to unnecessary disputes when filing insurance claims. Of course, a professional and responsible insurer nt should be able to explain these concepts clearly, assisting clients in answering health questionnaires and providing the necessary information to the insurance company. 

However, as a consumer, it is  always better to have a clear understanding of these concepts and ask the insurer for clarification if there are any doubts.

Interested in VHIS? Calculate your premium now!

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  • ^Case of 30-year-old male who applies for the Bowtie Pink VHIS with semi-private room (HK$80,000 deductible).
Next article - Medical Necessity
What is the meaning of medical necessity? How to define it? And how it would affect claims?
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