What are exclusions and loadings on life insurance policies?
If you’ve ever applied for life or income protection cover and had rude shock of being told you’ll have an exclusion or loading and asked yourself, what the heck are exclusions and loadings, and why do I have them? Here's a quick rundown.
An exclusion is something that is not covered by your insurance policy. For example, if you have a pre-existing medical condition, it may be excluded from your policy.
Loading is an extra charge that is added to your insurance premium. This is usually because of something that insurers deem to be a higher risk to insure, such as smoking, high BMI, or family history of cancer.
So now that we've got that out of the way, let's look at some of the most common exclusions and loadings that insurers apply.
Why do insurers put exclusions and loadings?
Insurance is all about accessing the risk, quantifying the likelihood of a claim to then determine an appropriate premium for that risk or decline taking on the risk completely.
Car insurance is simple, tell them the make and model of the car (i.e., how much will it cost to fix), tell them about any previous crashes or claims, and bam! You have a premium.
Life insurance is different from all other insurances, as we are all special little butterflies with our own quirks, desires, and health issues. This makes it time-consuming and difficult for life insurance companies to quantify the likelihood of a claim. Moreso, if you have a car crash 5 times, the car insurance company can choose not to cover you anymore. However, if you claim income protection 5 times, the life insurance company doesn't have these same freedoms.
This is why when applying for life insurance, the companies are very quick to place exclusions and loadings as it is difficult to assess the risk and they have no choice but to continue to pay out if the claim is legitimate.
Top 3 common exclusions and loadings on life insurance (and what they mean for you)
To most people, it's a given that their insurance will cover them in case of an emergency. But with so many policies having exclusions these days and ones that can vary greatly between providers—it may be worth checking to see just how many policies have exclusions. The data shown below reveals that out of 546 policies, only 26% don't have any exclusions or loadings.
Mental health
This is one of the most common exclusions on life insurance policies in Australia. In fact, just from our own data collected within an 18-month period, 31% of all insurance applications exclude mental health cover entirely. This can be difficult to understand especially if this was the reason for getting cover in the first place, however, keep in mind that even if you’re not covered for mental health conditions, if you are ill, injured or sick for any other reason and unable to work, the policy will pay out.
But it's not all doom and gloom, not all insurance companies are made equal. If the insurance company you applied for excludes mental health, then do your research (or ask your financial adviser too) and reach out to other insurers to determine if they would consider insuring your mental health.
Back conditions
It's important to know that back issues can sometimes be excluded from life insurance policies. It's not just a sore back or even degenerative disc disease—if you've had pain and symptoms that lead you to get treatment, you may get an exclusion which can affect your cover. If you are a manual worker, the insurer will be much more conservative. While back problems are relatively common—about 80% of Australians will experience back pain at some point in their lives—they can be expensive to treat. Just from our data alone, 19% has back conditions exclusion. And let's be real, with pretty much all of us getting some kind of back pain in our lives, it can add up to big expenses for an insurance company. So just make sure you read the fine print and check whether or not your cover includes back problems before signing on the dotted line. It might just save you a whole lot if something happens.
Knee conditions
You may not want to hear this, but we Aussies love our sports, and unfortunately, that often leads to knee injuries. And let's face it, those knees start to wear down as we age anyway. Either way, if you've got a dodgy knee, life insurance companies might give you a bit of a hard time. Whether it's an ACL tear or just some good old-fashioned osteoarthritis, they see it as a costly and potentially disabling condition. Our data shows a 5% or a total of 26 policies have loadings on them which makes it the third biggest percentage for exclusions.
So if you have knee issues, make sure you check for policies that don't exclude them or consider getting some extra coverage for any medical expenses. No one wants to be caught with something like that down the track. Better safe than sorry, right?
Overall, exclusions are for the life of the policy, however, insurance companies can review these exclusions should you have no recent symptoms or treatment.
Make sure you're maintaining good overall health—it'll pay off in the long run by avoiding future hassles. If you ever have questions about what is or isn't covered under your policy, give us a buzz so we can chat about it. We know life insurance can be confusing, but we're here to make things a little easier for you. And hey, if it turns out something isn't included in your coverage, we might just have some options for you.