5 life insurance exclusions you should know about
If you’ve never had an insurance policy before or even if you have, life insurance can seem pretty complicated. To start with, the term itself could almost be described as a catch-all, umbrella term that covers a lot, including income protection cover, total permanent disability cover and death cover. It’s a topic that can’t really be sugar-coated so we won’t even try - what we will try to do is give you the facts.
Unless you’re a lawyer and you’re used to reading PDS documents and fine print, then taking out any kind of insurance policy is probably a bit of a headache. Figuring out what you are and aren’t covered for can often leave you feeling a tad confused. Of course, every policy is different, but just so you go into your research with a bit of know-how already, we’ve come up with a list of five common exclusions. These are five instances in which your life insurance may not cover you:
This is a very common exclusion in life insurance policies. Generally speaking, insurance companies will not payout if the individual insured takes their own life within 13 months of signing up for the policy. Or if the policy has been in place for a long time, but the policyholder has recently upped the premium, then the insurance company may only pay out the old amount and not the new increased amount.
If you are experiencing stress or anxiety as a result of financial hardship, there are a number of financial counselling services free to access in Australia, these include:
- The National Debt Helpline: 1800 007 007
- The National Debt Helpline website
- The Small Business Financial Counselling Support Line: 1800 413 828
- The Small Business Financial Counselling website
2. Illegal or criminal activity
Even with accidental death cover or total permanent disability insurance, if you are injured while taking part in an illegal activity then your insurer may deny the claim.
Now you might think, ‘well I’m a law-abiding citizen, I’ve never even lifted a banana from the free fruit for kiddies basket in Woolies!’ However, ‘illegal activity’ is a fairly broad term and although it could refer to something sensational like stealing a car or holding up a bank, it could also apply to more passive crimes such as trespassing.
So, if you are injured while taking a jaunt over what you thought was common land, but actually turns out to be private property, you may not be eligible to make a claim. It’s a tricky one and definitely something to look out for when taking out an insurance policy. You may even want to call the insurance company and ask for some clarification on this exclusion.
3. Drug or alcohol use
Drug and alcohol substance abuse is also a common exclusion in life insurance policies. Unless the consumption of pills or medication was taken at the direction of a doctor, insurers will most often not pay out if it’s found that the person insured was injured while under the influence of alcohol or in connection to drug addiction, or substance abuse.
This can also apply if someone has a car accident while driving over the legal limit. If you or someone you know is struggling with alcohol addiction you can call Alcoholics Anonymous Australia on 1300 222 222.
4. War or warlike activity
Another common exclusion, this one applies if you are injured during a war, whether it is declared or not. Now you hopefully will not find yourself in a war in the future, but notice the wording ‘warlike activity’? This can also include civil unrest, such as a riot.
So if you were injured while taking part in a protest, then your insurer may also deny the claim.
5. Sports and risky hobbies
This last one is really only if the sport or particularly risky activity is something that you do on a regular basis. In other words, your insurance company probably won’t be worried if you’re doing a once-in-a-lifetime skydive for your birthday. However, if you’re a regular paraglider or you’re often taking rides in race cars, then an insurer may see your behaviour as risky.
If you do have risky hobbies, then your insurance company may apply certain exclusions to your policy. For instance, if you are injured in a motor racing accident, then you may not be covered.
Each individual’s policy is different and often determined by a series of questions that your insurer asks you when you apply. Now, before we go any further, one thing to be clear on is that you should be completely honest when applying for insurance.
If you omit something or do not tell the truth, for example if you lie about not being a smoker, then your insurance company may deny a claim based on the fact that you did not provide the correct information.
Read the PDS before signing on the dotted line
To sum up, while these exclusions occur frequently in life insurance policies, it is always advisable to read the product disclosure statement before putting your signature on the dotted line. Every policy will have slight differences, so it’s definitely a good idea to make sure you understand what is and what is not covered before you make a decision.
Not sure if you need to take out a policy or not? Why not check out Mozo’s guide on how to determine whether or not you need life insurance.