With the aging Australian population Life Insurers are beginning to take a much closer look at the medical history of applicants for Life Insurance. Problems can also arise from the younger generations being more involved in sporting activities.

Where the Life Insurance Companies are advised of a greater risk from a medical history or greater exposure due to the applicant’s involvement in a risky pastime the response will generally be to excluded any claims from that specific event or apply an additional amount to each year’s premium to cover the extra chance of a claim being made.

But what are exclusion and Loadings?

Exclusions:

Exclusions are a clause added to the application for life insurance, trauma insurance or income protection that states that the policy will not cover any claims made due to a particular cause. They can be applied for a number of different reasons:

Firstly, the event could relate to a past medical event. For example, an applicant may have had a back injury, a shoulder complaint or even heart by-pass surgery. In each of these cases the insurance company may offer the applicant cover but excluded any claims relating to the area excluded. This is done to allow cover to be offered at all, if the exclusion was not included that applicant would be unable to be insured at all.

Second, the applicant may be involved in a high risk pastime such as diving, motor racing or parachuting. Where the risk is too great for the insurance company to absorb, they will offer cover with an exclusion for that particular pastime.

Thirdly, the applicant may have something in there employment history or occupation that would ordinarily mean that the insurer would be unable to offer cover. This could be that the applicant is newly self employed and unable to provide a full year’s evidence of income or a part of the daily work of the applicant is too high a risk such as working at heights or underground.

Loadings:

Loadings fall between a policy being issued without modification and an exclusion. Where the risk is higher than normal but not high enough to require an exclusion the insurance company may apply a loading to the policy of between 25% and 300%. When a loading is applied to a policy the premium to be paid is increased by the loading amount. As with Exclusions, there are several different reasons for a loading to be applied.

Firstly, when an applicant is involved in a high risk pastime such as amateur soccer or bike racing the insurer will assess the risk and apply a loading that represents the added risk of that pastime.

Secondly, where the applicant is medically well but considered to be obese based on their Body Mass Index (BMI of over 34) the insurance company will apply a loading to represent the higher risk of heart attack, stroke or injury.

What should you do?

When you are lodging an application for Life, Trauma or Income protection you are bound by a Duty of Disclosure. This means that you must fully disclose to the insurance company any matter (e.g. health or pastimes) that may effect their assessment of your application.

If you fail to disclose a health issue or activity that later results in a claim against your insurance the insurer may decline to pay your claim. From the insurers perspective, when an application is received with a loading already applied the underwriting process is quicker and easier to complete.

It is important to note that should your medical situation change or you commence participating in a high risk sport after the application has been underwritten and completed by the insurance company you are not bound to advise the insurer of this change.

When you are applying for Life Insurance products be sure to advise your Broker of any factors that may affect the application, regardless of how minor it may seem. Your Broker can help you to determine what is relevant to the insurance company.