Explore Life Insurance

When you look into life insurance, you may come across three key terms: exclusions, loadings and indexing. However, you might not have any idea what they mean! We’re here to help explain it to you, as well as make your purchasing decision a little easier.

Life insurance exclusions are circumstances that are not covered by your life insurance policy, which generally means you will not be able to make a claim for these events.
Example: You’re unable to get cover for a critical illness after you’ve been diagnosed with the critical illness (e.g. cancer).
Life insurance loadings are an additional fee you pay for life insurance premium cover if you’re more likely to make a claim in the eyes of the insurer.
Example: You have a history of heart disease in your family or have other pre-existing conditions.
Life insurance indexation is the process in which your insurance payout amount changes over time. Often, it will change in line with either a set percentage or inflation, in order to keep up with the cost of living.
Example: Cover taken out in your 30s is indexed, so your payout is still relevant to the cost of living in your 50s.

Exclusions, loadings, indexing and all other terms and conditions of a life insurance policy can be found in the Product Disclosure Statement (PDS).

What are some common life insurance exclusions?

When it comes to which circumstances are excluded from life insurance, exclusions will vary from policy to policy. However, some common exclusions include the following:

  • Behaving unwisely. If your behaviour is deemed irresponsible, careless or unacceptable – according to the terms and conditions in the PDS – your insurer may not cover you. This includes reckless driving, not following warning signs or failing to seek treatment for extreme and obvious health issues.
  • A risky lifestyle. You might find that dangerous pastimes like skydiving, rock climbing, dangerous combat sports and base jumping (just to name a few) are excluded from your policy.
  • Bad health. Pre-existing health conditions can exclude you from taking out cover or result in life insurance loadings (extra cost). Life insurers will consider your medical history when you apply for a policy.
  • High-risk travel plans. Travelling to a country considered high-risk, or partaking in dangerous leisure activities, can see you excluded from cover if something happens to you. You can check the Australian Government’s Smartraveller website for a list of countries with ‘do not travel’ warnings in place, as travel to these locations will most likely void your cover.
  • Working in a dangerous profession. Certain occupations may result in exclusions or incur premium loadings based on the hazards you may face in your line of work which are deemed high risk. These occupations can include those in health services, long-distance driving, mining and roles involving working at extreme heights or depths.
  • Suicide and self-harm. Life insurance providers generally won’t cover suicide or self-harm if it occurs within 12-13 months of taking out a policy. Furthermore, self-harm is generally excluded across total permanent disability (TPD), trauma or income protection policies. Providers may also assess any previous cases of self-harm or attempted suicide on a case-by-case basis when deciding what cover they will offer.
  • Illegal and criminal incidents. Life insurance providers often won’t cover death or injuries that are a result of anything illegal. For example, while car accidents are generally covered by life insurance plans, a car accident that occurred while illegally street racing probably wouldn’t be.

Some of the above exclusions are referred to as general life insurance exclusions and typically apply to everyone taking out a life insurance policy. General exclusions may include suicide and self-harm, illegal activity, a terminal illness at the time you commence your policy and behaving unwisely.

Specific life insurance exclusions are unique to your situation and will usually differ between policyholders based on their different circumstances. A risky lifestyle filled with dangerous activities, bad health, high-risk travel plans and a dangerous occupation are all examples of specific exclusions.

What are life insurance premium loadings?

A loading fee is a percentage increase in price on standard life insurance premium rates. A loading fee is based on your level of risk (i.e. if there’s a higher likelihood of you making a claim in the future due to certain circumstances and situations).

These loadings can affect your life insurance policy by increasing the cost of your premium. Common examples of life insurance premium loadings include:

  • Smoking cigarettes or having a history of smoking
  • Working in a dangerous occupation
  • Having a risky hobby such as skydiving
  • Drinking excessively or having a history of heavy drinking
  • Having pre-existing conditions

Your loading fee and the criteria for life insurance loadings will differ depending on your insurer.

How do exclusions affect your life insurance?

Making life insurance claims that are the result of something specifically excluded by your policy are likely to be rejected by your provider, and your loved ones could be left without a proper safety net as a result. This is why you must read and understand the terms and conditions in your policy document.

Life insurance exclusions

Frequently asked questions (FAQs)

Do I have to include indexing in my life insurance policy?

You can generally opt-out of indexation on your life insurance if it was applied as standard at the point of application. Avoiding inflation may ease the rise in your life insurance premiums, but the potential payout will suffer as a result of increases in the cost of living.

If you don’t think you’ll require an increase over time to the amount you’re insured for, you can get in touch with your life insurer and discuss indexation with them personally.

Can I review and change my life insurance exclusions and loadings?

In some cases, you can ask your insurer to review a particular premium loading or exclusion if your lifestyle or circumstances – and associated level of risk – have changed.

For example, you might be able to have your loadings or exclusions reviewed and changed if you’ve:

  • Changed jobs
  • Quit smoking
  • Given up a dangerous hobby
  • Had a change in health status.

Having your cover reviewed could make a difference to the price you pay and what you’ll be able to make a claim on.

How is loading on life insurance premiums calculated?

The loadings calculated on life insurance premiums differ between providers, not to mention they will also vary based on the insured individual. As a life insurance customer, you’re bound by a duty to take reasonable care not to make a misrepresentation to your insurance provider about your lifestyle and health at the time of application.

Your provider will then use this information to determine whether you’ll incur any loading.

How is indexed life insurance calculated?

Indexed life insurance is either calculated as a fixed percentage or in line with changes to the Consumer Price Index (CPI), which measures the rate of inflation. The CPI is calculated against the changing price of goods and services in Australia, making it an appropriate way for reassessing life insurance payouts.

Typically, an insurance policy will define indexation as a fixed rate (e.g., 5%) or the CPI inflation rate, whichever is greater.

Is indexed life insurance a good investment?

With indexing, there’s the possibility your premiums and payout amount could increase in both price and value, either at a fixed rate per year (for example, 5%) or at the rate of inflation.

Without it, your premiums may be cheaper (although some insurers index at no extra cost), but your potential payout would stay the same, which – in real terms – amounts to less over time. With the rising cost of living, indexing can make a big difference over the long term.

For example, if you’re insured for $100,000 and your life insurance policy is indexed at an inflation rate of 4% for the year, your sum insured will increase to $104,000. If the inflation rate is consistently at 4%, your sum insured will increase by 4% year after year.

Over the long term, this can make a substantial difference in your payout, albeit while incurring a higher premium. The graph below shows an example of what this might look like.

Life Indexing

N.B. Inflation and consumer pricing can change multiple times throughout the year, and likely won’t increase at the same consistent rate every year. The chart above is for illustrative purposes only.

Compare policy exclusions, premiums and more with ease

When comparing life insurance through our free comparison service, you’ll be able to see exclusions and indexation from available policies side-by-side with our easy-to-navigate comparison tool.

It’s one of the easiest ways to review multiple options at once, so you can make an informed choice when you buy. You can also review and compare different types of life insurance policies, such as trauma insurance, total and permanent disability insurance and term life insurance.

If you see a policy you like, the next step involves speaking with one of our specialists to assist you in making a choice based on your circumstances.

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