03 Jul Quick Guide: Exclusions & Loadings on Insurance
You’ve applied for insurance, you’ve disclosed everything that needs to be disclosed and you’ve been offered cover with special terms: either an exclusion or a loading. This can be a shock and can feel like you’ve been singled out or that the insurer is over-reacting.
Why Charge an Extra Premium or Exclude?
Extra premiums or exclusions are applied where insurers believe there is an increased probability of a claim being made.
Unfortunately insurance companies cannot look into the future therefore risk assessment is not easy. They get one chance to make the right decision at time of underwriting. As a result insurers must evaluate risks using the ‘laws of large numbers’. If a large group of individuals with similar medical conditions were studied over time, the condition with some may improve, some may worsen and others would remain the same.
When assessing individual applicants insurers cannot know who will improve and who will not. Therefore an insurer must apply the same risk assessment to any applicant who has the same or a similar medical condition
What is an Exclusion?
Exclusions mean that a claim cannot be made as a result of an excluded pre-existing medical condition or from participating in an excluded activity. These conditions and/or activities are listed in the policy schedule in black and white and you must agree to them before proceeding.
An example of how an exclusion would play out is that if you had an exclusion for sky diving then you would not be able to make a claim as a result of participating in this activity.
However, let’s say a person has a back exclusion and was to sustain injuries as a result of a major accident which affected the excluded condition such as the spine, the insurer would generally consider a claim. However, payment in this case would be considered if it is proven that the pre-existing disorder was not a contributing or complicating factor to the present disability
What is a Loading?
A loading is a percentage increase on the standard premium, usually due to a pre-existing medical condition when there is a higher than average probability or chance that a claim may occur. These increases ensure that people can obtain cover in situations where they may have previously thought they weren’t eligible.
A loading can be a good thing because it means the insurer will cover you for your pre-existing condition rather than excluding it, it will just cost you a little more than the standard rate.
Can Loadings & Exclusions Be Reviewed?
In some cases they can be, generally where a person’s condition improves or an activity is no longer pursued. As each review is on a case by case basis it’s always best to speak with your Adviser who will guide you through the process.
Common examples of reviewing exclusions and loadings are:
- Removing/reducing loadings for bringing BMI down
- Removing some musculoskeletal exclusions after being symptom and treatment free for 2 years
- Removing some mental health exclusions are being symptom and treatment free for 5 years, assuming the excluded event was a once-off episode
What Does a Loading or Exclusion Mean for My Health?
As mentioned previously, insurers get one chance to make an assessment of a person’s likelihood of claiming over time. This is a risk-based assessment, not a clinical medical appraisal.
Your doctor or other medical practitioners work with clinical medical appraisal. This means the medical professional may have multiple opportunities to see a patient, manage their condition and therefore manage the risk.
This is why exclusions and loadings can seem so cut and dried.
We are always here to help you and to ensure you can get the best cover available for your individual circumstances. If you have a loading or exclusion and want to review it, or have any questions, please contact us.