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Category Life Insurance

Loadings, Exclusions and the Implications for Your Insurance Cover

27 September 2012 Dalene Allen, co-founder and underwriting director at Altrisk
Dalene Allen, co-founder and underwriting director at Altrisk

Dalene Allen, co-founder and underwriting director at Altrisk

Modern man is becoming increasingly unhealthy. Upturns in the rates of obesity, diabetes and heart disease are just a few of the indicators that we, as a society, are neglecting the care of our most important assets – our bodies. Not only do these disease

In fact, loadings and exclusions are becoming a more common factor of life insurance than ever before. The vast majority of loadings and exclusions applied by insurers pertain to health or lifestyle conditions.

This is according to Dalene Allen, co-founder and underwriting director at Altrisk, voted 2012’s leading risk product provider by the Financial Intermediaries Association (FIA). “When applying for life, critical illness, disability or income protection cover, you will be required to complete an application form which covers your health, previous or existing conditions, family history of health conditions, occupation and hobbies. Your broker will submit this form to the insurer for review and you may also be required to undergo routine medical tests. An underwriter will then review the application form and any medical test results. The information gathered in this process forms the basis upon which the underwriter will decide whether your application for cover is accepted at standard rates, or with a loading or exclusion,” says Dalene.

But what are loadings?

“A loading is an additional charge to the premium that caters for a greater risk. It is applied when a life insurer believes that – statistically - your health condition, hobby or work predisposes you to claim more than the next person. In other words, loadings are applied to an insurance policy premium where the risk is higher than average, but not high enough to require an exclusion. By paying a loading on the insurance premiums, you can be fully covered for all events defined within the policy wording,” says Dalene.

Consider the following example: James, aged 42 applies for R1 million worth of life cover. He completes the application form with assistance from his broker, taking care to answer all of the questions accurately and honestly, disclosing previous and pre-existing conditions, medical treatments and family history. The family history reveals that James’ father and grandfather both suffered from high cholesterol and that his father suffered a major heart attack before the age of 50. The results from James’ routine medical tests reveal that his cholesterol levels are much higher than the acceptable or normal levels for his age. As a result, the underwriter provides a final offer via James’ broker, with a ‘loading’ on his premium. This means that James will pay more than the standard premium.

So what is an exclusion?

“An exclusion is an additional clause applied to your policy if some aspect of your profile was considered to present too great a risk of a claim. This could be due to a dangerous hobby or occupation, or an existing medical condition. In such cases, the insurer will reduce this risk to them by not covering that particular part of the body, condition, hobby or occupation. The insurer may offer cover on the condition that claims relating to the activity or pre-existing condition are excluded, either permanently or for a specific period of time,” explains Dalene.

Consider this scenario: When completing her application form for disability cover, Mary indicates that she previously suffered a lower back injury while playing squash. Although the injury was treated, it is still a condition that requires an occasional visit to the chiropractor if she overdoes any physical activity. Exclusions can apply to past or pre-existing medical conditions and, since Mary has indicated an existing back injury, her chances of suffering a temporary or permanent disability due to a lower back injury are much higher than normal. The underwriter could therefore permanently exclude cover for Mary’s lower back, but offer her cover at standard rates for all other conditions covered under the policy wording. In other words, Mary would have cover for all defined conditions, provided they are unrelated to her existing lower back condition.

“Exclusions can also apply to high-risk activities such as cave diving, rock climbing and skydiving and to occupations deemed to be dangerous or in high risk territories such as working at heights, underground or in conflict zones such as Sudan, Iraq and Somalia.

“While they can be difficult to understand, exclusions can have a positive outcome. In many cases, applying exclusions means that we can provide cover at standard rates for everything except the specified exclusion to those who would otherwise be unable to obtain any sort of cover at all,” says Dalene.

Do I have a choice between a loading and exclusion?

While certain hobbies or conditions may only attract an additional loading on the premium offered, in some cases you can opt for an exclusion instead. “This is particularly relevant in instances where there is no regular participation in a dangerous activity, such as mountain climbing. You may feel that the additional expense does not warrant having the cover for a hobby that you participate in on a few rare occasions. You will have the choice of accepting the loading and having comprehensive cover in place, or converting this to an exclusion - bearing in mind that you will have no cover for any claim related to the exclusion,” says Dalene.

Can a loading or exclusion be reviewed later?

In many instances lifestyle factors play a significant role in policy loadings. These factors can include smoking, physical activity levels, body weight relative to height and blood pressure. “While there is little that can be done about a family history of disease, adopting a healthy lifestyle can substantially reduce your risk of contracting conditions and diseases such as hypertension (high blood pressure), coronary heart disease, diabetes and some forms of cancer.

“And since lifestyle factors are frequently within our control, loadings or exclusions as a result of these lifestyle factors can be reviewed from time to time if your condition improves. It is vital to speak to your financial advisor regularly about your changing personal circumstances and any significant changes in your lifestyle or occupation. This can help to keep costs down and ensure you are covered as comprehensively as possible. The expertise of a professional financial planner will ensure that the cover you have today and in future remains appropriate for your budget and individual circumstances,” concludes Dalene.

Finally, always remember the importance of full and accurate disclosure on your application form as this affects the risk assessment, the premiums charged, and the terms and conditions of the final contract. Do not be tempted to omit information for fear of a loading or exclusion. The application form is part of your contract with the insurer, in which you accept full responsibility for the information provided. Any non-disclosure, either through omission or the provision of false information, could invalidate your policy – leaving you with no cover at all.

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