Learn about common life insurance policy exclusions and how they might affect your cover in different situations.
Policy exclusions are specific situations or conditions where your life insurance won’t pay out. Understanding these exclusions is crucial when purchasing insurance to ensure you have the cover you expect when you need it most.
Why Do Exclusions Exist?
Exclusions serve important purposes:
- Help insurers manage risk and keep premiums affordable
- Prevent fraud and discourage risky behaviours
- Address situations where the risk is too high or unpredictable to cover
Standard Policy Exclusions
Most life insurance policies contain standard exclusions. These generally apply across term life, TPD, trauma, and income protection.
Suicide Exclusion Period
- Most policies won’t pay a death benefit if the insured person dies by suicide within the first 13 months.
- After this period, suicide is typically covered like any other cause of death.
Pre-Existing Conditions
- Cover may be excluded for conditions you already had before applying, or you may pay higher premiums for them.
- Example: If you previously had skin cancer, your policy may exclude future skin cancer but still cover other conditions.
Illegal Activity
- Claims arising from illegal acts are usually excluded.
- Example: If you are injured while driving under the influence of alcohol or drugs, your income protection or TPD claim may be denied.
War and Terrorism
- Most policies exclude death or disability from war or terrorism, sometimes extended to civil unrest or riots.
- If you serve in the military or travel to high-risk areas, always check your policy.
Dangerous Activities and Occupations
- High-risk activities or jobs may be excluded unless you pay extra to include them.
- Examples:
- Extreme sports (skydiving, rock climbing)
- Aviation (other than as a passenger)
- High-risk jobs (mining, offshore oil work)
Exclusions by Policy Type
Term Life Insurance
- Suicide exclusion (13 months)
- Misrepresentation or non-disclosure at application
- Travel to certain high-risk countries
TPD Insurance
- Self-inflicted injuries
- Drug or alcohol abuse
- Mental health conditions (sometimes excluded or limited)
- Back conditions (may be excluded or limited)
Income Protection
- Normal pregnancy and childbirth (complications may be covered)
- Pre-existing conditions
- Unemployment or redundancy (not health-related)
- Industrial action or business closure
Trauma (Critical Illness) Insurance
- Condition not meeting severity criteria
- Waiting period (commonly 90 days for cancer, heart attack, stroke)
- Family history exclusions (sometimes applied)
Policy-Specific and Individual Exclusions
Underwriting Exclusions
Applied after assessing your health, occupation, and lifestyle.
Example: A history of back problems may result in exclusions for back-related claims.
Occupation-Based Exclusions
Example: A commercial fisherman’s policy may exclude accidents at sea.
Lifestyle-Based Exclusions
Example: A rock climber’s policy may exclude climbing-related accidents.
Premium Loading vs Exclusions
When higher risk is identified, an insurer may:
Exclusion
- Condition is not covered
- Premium remains standard
Premium Loading
- Condition is covered
- You pay a higher premium
Sometimes you can choose between accepting an exclusion or paying more for cover.
Understanding the Implications
- Risk assessment: How likely is the excluded event to affect you?
- Financial impact: Could you manage financially if the excluded event occurred?
- Alternative cover: Another insurer may offer different terms.
- Premium vs cover trade-off: Decide if you’d prefer to pay more for broader cover.
How to Identify Exclusions in Your Policy
- Read the Product Disclosure Statement (PDS): General exclusions are listed.
- Check your policy schedule: Lists exclusions specific to you.
- Ask for clarification: Advisers or insurers can explain in plain language.
- Review regularly: Exclusions may change with renewals or new cover.
Key Questions to Ask
- Are there exclusions specific to my circumstances?
- Can exclusions be removed after a period of time?
- Would paying a higher premium remove some exclusions?
- How are key terms defined in the policy?
Can Exclusions Be Negotiated or Removed?
- Review periods: Some insurers review exclusions after 1–5 years if health improves.
- Medical evidence: Specialist reports may support removal of exclusions.
- Convert to loading: Pay extra to cover the condition instead of excluding it.
- Shopping around: Different insurers take different approaches.
⚠️ Never cancel an existing policy until a new one is in place. Pre-existing conditions can make new cover harder to obtain.
The Role of a Financial Adviser
An adviser can:
- Explain exclusions in plain language
- Identify insurers with more flexible terms
- Negotiate or request reviews with insurers
- Suggest alternatives or complementary cover strategies
