Explore Life Insurance

When looking at ways to protect the value of your life, it is important to understand exactly what life insurance is and why it’s important, and how your life insurance policy can be affected by exclusions, premium loading, and indexing.

There are many reasons to get life insurance, but mainly it can allow your family to have enough funds to continue to afford their lifestyle if you’re no longer there.

Determining whether you need life insurance or income protection, and figuring out how much life insurance you will need is important. However, there are also many things that can directly affect your life insurance policy and premiums which you should understand and consider.

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these are standard conditions or specific cases based on your level of risk, which you can’t base your life insurance claim on.

an additional fee or increase in price of your standard life insurance premium, due to a higher likelihood of making a claim.

The amount that your benefit payout amounts are indexed (how much they increase or decrease) based on inflation rates.

Exclusions, loadings, and indexing, along with general terms and conditions in the product disclosure statement, can generally be found in the few different types of life insurance, including:

‘Standard’ life insurance, which pays a lump sum to the person of your choosing in the event of death or diagnosis of terminal illness.

Covers your expenses with a lump sum payout if you are permanently disabled and are not able to resume work and make an income.

Also called ‘recovery insurance’, this pays a cash benefit if you are diagnosed with listed critical illnesses or injuries.

Provides continued income (a specific proportion, often up to 75% of monthly income) for a set period of time (e.g. for a year or two or until a certain age) to cover you in the event of an illness or injury that prevents you from working and earning an income.

What are some common life insurance exclusions?

Life insurance premiums are generally calculated against the amount of risk the customer presents to the insurer. If someone’s risky lifestyle or bad health increases the probability of an early death, illness, or injury, they will be deemed as ‘high risk’ by the insurer. Life insurance for high risk individuals will usually have more exclusions (and higher premiums).

Exclusions are comprised of particular cases, conditions, or activities that can’t be claimed on. These excluded situations aren’t covered for a payout by your life insurance provider if you pass away, are critically injured, diagnosed, or become totally and permanently disabled. Every insurer and policy will classify applicable exclusions differently. Your policy’s Product Disclosure Statement (PDS) will outline important information on how exclusions may affect you.

The most common types of standard exclusions, which are generally applied to most life insurance policies, include:

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, but it is usually covered if it occurs after this period is over. Claims for self-inflicted injury are usually also excluded from total and permanent disability cover, trauma insurance, and income protection insurance.

If the insured has attempted or considered suicide, or experienced mental illness in the past, they will be assessed case-by-case to determine if the insurer will provide cover, and if so on what terms.

Illegal & criminal incidents

Life insurance providers often won’t cover death or injuries that are a result of anything illegal.

Behaving unwisely

Life insurance providers may not cover you if your behaviour is deemed irresponsible, careless, or unacceptable by reasonable behaviour or by the policy’s standard. The policy’s PDS should outline what is seen as unwise and unsafe behaviour by the insurer. This exclusion can include (among other things):

  • acting dangerously;
  • driving recklessly;
  • not adhering to rules or following warnings;
  • failing to seek treatment for extreme and obvious health issues or ailments.

There are also common life insurance exclusions which can apply to specific policies or customers, including:

Risky lifestyle

Exclusions can include your participation in hobbies, activities, or pastimes in motorsports, water sports, extreme sports, dangerous combat sports, aviation, or outdoor pursuits that can be considered hazardous, dangerous, or risky, like:

Extreme/combat sportsSkydivingHang gliding
ParachutingBase jumpingBungee jumping
Rock climbingAbseilingMountain climbing
Extreme skiing/ snowboardingMotorsports car/bike racing/rallyingCompetitive go-karting
Scuba divingSurfingJet skiing
Types of boatingHot air ballooningHunting/shooting

Bad health

Your health can affect life insurance premiums and exclusions. Having an ongoing pre-existing medical condition, which is a condition or illness you have known about before you take out a life insurance policy (or having survived a serious illness which might recur) can result in your insurer excluding claims related to this condition.

Pre-existing medical conditions that may result in policy exclusions will usually include things like cancer, diabetes, epilepsy, heart disease, asthma, and obesity. However, different insurers will have various classifications for conditions.

Cancer, strokes, and heart attacks may have a 90-day qualifying period in respect of trauma policies (which means you can’t claim on these conditions within 90 days of purchasing the insurance). Post-natal depression is also usually excluded if the person isn’t incapacitated for over three months.

People with pre-existing medical conditions can still take out life insurance, although insurers may exclude claims pertaining to these specific conditions. Depending on the policy, insurers might include loading fees on premiums to cover the extra risk of pre-existing conditions, which may allow the person to make a related claim (usually with certain terms and conditions – refer to the policy’s PDS for more information).

Having high-risk travel plans

Travelling to a country that is considered high-risk, or on a holiday that includes risky transportation or dangerous activities, will often result in an exclusion for claims related to the location, or the activity, or transportation.

Working in a dangerous professional field

Certain occupations or duties are considered high-risk and may result in exclusions (or will incur additional premiums) as they involve specific hazards that could be encountered. This may include:

  • occupations in health services that may expose you to diseases;
  • occupation as a long distance driver, which increases your risk of a car accident;
  • operating heavy machinery on a construction site;
  • potentially dangerous occupations involving firearms, explosives, or chemicals (e.g. firefighters, police officers, pilots, or demolition experts);
  • working in the mines;
  • working at extreme heights.

While these are all generally considered a risk by life insurance standards, the particular matters the insurer will exclude may vary between different life insurance providers. Each insurer may categorise and penalise risky hobbies uniquely, which makes it even more important to compare life insurance policies to make sure you find the right one for your budget needs and lifestyle.

If you are serving in armed forces (Australian defence force) or any occupation in a war zone, and want a life insurance policy without war zone exclusions, you will need a specific Defence or Navy policy.

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 is a higher likelihood of you making a claim in the future due to certain circumstances or situations.

Loadings are commonly added to premiums to cover high-risk lifestyles or situations of people who may not be eligible for standard life insurance rates. The value of the loading fee will vary between different circumstances and insurers, and as a life insurance customer you are bound by a duty to disclose any information regarding your lifestyle and health, to determine whether you will incur a loading fee and how much the loading will be.

The most common reasons a loading fee may be added to life insurance premiums is:

If you have a pre-existing condition.

Having a pre-existing health condition is usually the most common reason you may incur a loading, because having past, current, or recurring health issues will increase your probability of claiming on your life insurance as a result of the condition.

You will be required to disclose and provide evidence of your pre-existing condition upon your life insurance application. Each insurer will have different classifications for pre-existing conditions, which can sometimes include:

  • diabetes
  • heart disease
  • cancer
  • stroke
  • depression/anxiety
  • sleep apnea
  • weight issues (being overweight with an unhealthy body mass index (BMI) can increase likelihood of develop high blood pressure, cholesterol, heart attacks, or diabetes).

Some insurers may refuse to cover you for certain conditions or may exclude claims related to the condition. However, if it is accepted, then you will usually be able to get cover with a loading that allows claims and payouts for this particular condition.

Loading fees for pre-existing conditions are generally scaled and can sometimes start at a 50% rate of the premium, and may increase at further 25% increments depending on the condition’s level of risk.

If you have a risky job, lifestyle, or hobby

Having a high-risk job, occupation, travel plans, or lifestyle that includes regular high-risk activities or hobbies that aren’t already classified as exclusions are likely to incur a loading fee (the fee will vary between insurers and specific risk-assessment). This is because these factors increase your likelihood to make a related claim for injury or death.

If you are a smoker or heavy drinker

Being a smoker or heavy drinker will generally incur a high loading fee on your life insurance premiums, as smoking and excessive drinking affects your health and can increase your probability of making a claim on your policy earlier than expected.

Because smokers are high-risk customers, they can sometimes be charged up to double the amount for life insurance premiums than non-smokers would. Quitting smoking and reducing (or stopping) alcohol consumption is a way to avoid loading fees on your life insurance premiums.

How does indexing affect your life insurance policy and premiums?

Indexation is usually added to life insurance policies as standard to make sure your sum insured is adjusted for inflation to cover the future value of money. If indexation is not included in your policy, it may be able to be added at an extra cost.

Indexing has the ability to affect the value of your life insurance premiums and payouts, by allowing these figures to adapt and correspond with inflation.

The sum insured will generally be indexed according to the Consumer Price Index (CPI) or inflation rate. CPI increases are valued on the changing average prices of goods and services paid by customers around the country.

The cost of life insurance premiums increases in proportion to the inflation rate/indexation value. This means your life insurance premiums and payout amount could increase in price/value corresponding to inflation rates, as opposed to remaining the same level without indexation, as shown below:

Life insurance policy value with and without indexation

For example; if you are insured for $100,000 and your life insurance policy is indexed at an inflation rate of 4% for the year, then your sum insured will increase to $104,000. If the inflation rate is consistently at 4% then your sum insured will increase by four per cent year upon year.

This can make a difference with a long-term life insurance policy of 10 or 20 years, where the value of money and the price of living, goods, and services can increase substantially. Indexation means your life insurance payout amount grows enough to help cover the increasing cost of living and rising price of consumer products; it can make a big difference for people with life insurance policies over a long term, as inflation and consumer pricing can change more substantially over a longer period than a shorter period.

Comparing life insurance policies with comparethemarket.com.au will give you the option to tailor your policy around exclusions, loadings, and indexing to help you find the right life insurance cover for your life and lifestyle.

Frequently Asked Questions

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

You can generally opt out or remove indexation or automatic CPI increases in your policy if you don’t think you require your sum insured to increase with changing prices. Avoiding inflation may also slow the rise in your life insurance premiums, however your payout amount also won’t increase with inflation. This means the relative value of the benefit may decrease over time, compared to the value it had when you first set up the policy.

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

In some cases a particular loading or exclusion can be reviewed by your life insurance provider if your circumstances, lifestyle, or level of risk has changed.

For example, your exclusions and loading may be able to be changed if, since your initial application:

  • if you have changed jobs for a less risky profession;
  • if you have stopped smoking;
  • if you have given up a risky lifestyle hobby or activity;
  • if your health status changes.

If you would like answers to more life insurance frequently asked questions, visit our Life Insurance FAQs page.

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