When you apply for mortgage protection insurance you will be required to complete an application form which includes details about your health, your occupation and activities. The reason for these questions is to assess as accurately as possible the risk for the insurance company and therefore to determine if they are able to offer you insurance at standard rates, with a loading or with any exclusions.
Insurance Companies Are In The Risk Business, But…
Insurance companies are in business to make a profit, and one of the ways they ensure their profitability is by limiting their risk.
That may sound a little odd at first since no one lives forever!
Insurance companies try to protect themselves from paying claims for people who die younger than expected by excluding some causes of death, like suicide or dangerous activities like skydiving.
Insurance companies limit their risk by the use of loading’s and exclusions and other terms in the actual insurance contract – the fine print.
Understanding any standard insurance exclusions is important because they can be used
o lower the premium of seemingly identical coverage from different companies
Standard Exclusions To Expect
The most common insurance exclusion within a mortgage protection policy is the suicide exclusion.
The suicide exclusion says that the insurance company won’t have to pay if the insured person commits suicide in the first 13-months of taking out the policy. This insurance exclusion protects insurance companies from people purchasing insurance with the intention of committing suicide to provide a financial benefit to their families or other beneficiaries.
Another common insurance exclusion is for illegal activities.
This insurance exclusion is pretty straightforward; if you should die or be injured while committing a crime or participating in an illegal activity, the insurance company can refuse to make a payment. This clause means that if you are killed while you are participating in a bank robbery your claim will not be paid, but the same exclusion may also apply if you were involved in a very minor illegal activity like driving with an excess alcohol level – in which case your claim may be declined.
Whether you call them loopholes, technicalities or the fine print, you can’t afford to ignore the exclusions within an insurance policy. There are also a number of reasons an insurance company may include additional exclusions and these are where you need to be careful as insurance companies can often apply unreasonable loading’s and exclusions.
Common Reasons For Loading’s Or Insurance Exclusions
There are three key areas that the underwriters at any insurance company will look at;
- Your health
- Your occupation
- Your activities
When you get a quote for life insurance and mortgage cover it is based on the assumption that you are reasonably health and probably a non-smoker. The insurance company have based their premiums on this and to ensure that the premiums remain competitive for all the policy holders they need to be careful not to let people with higher risk factors be included within the standard pool as they can affect the ongoing premiums for everyone.
Therefore if you are not in good health you would be expected to either pay more (a loading) or have a specific medical condition excluded. Smokers also pay more as they are expected to have more health issues and a shorter life.
An underground miner’s job has a higher degree of risk that a storeman. This means that a miner is paid more, but it also means that a miner will expect to pay more for their insurance – and that is assuming that they can even get insurance.
Some occupations like police and firefighters have group insurance schemes as they would otherwise find it difficult to get insurance cover.
The insurance companies produce a schedule of occupation classes that your insurance broker will use to create your quote; however sometimes when you complete the application forms and provide more detail on the actual activities within your job role your premiums may be either cheaper or more expensive.
There are a few sports and activities that will be excluded if you are currently participating or have any intention of participating in them.
The following are a list of the more common pursuits and activities that the insurance companies may deem as hazardous; aviation, hang-gliding, kiting, sky diving, mountaineering, caving, scuba diving, long-distance sailing and motor sports.
When I was a bit younger my sport was water-ski racing which was considered a high-risk sport and therefore I could not get any insurance company to cover me for any income or repayment cover if being off-work was due to a ski-racing accident. The initial insurance exclusion was going to include any water skiing; however I fought back and had it limited to racing and preparation for racing only.
I could not argue that ski-racing was not a little more dangerous than other sports – take a look for yourself.
This video was taken during the Southern 80 which I raced in 3 times behind a similar boat in the unlimited class.
Full Disclosure Is Important
It is definitely important that you disclose everything at the time of doing an application!
Some people choose not to tell the insurance company about something that they do and think they are saving money; however they could easily find that the insurance company will refuse a claim and therefore they have paid years of premiums for no benefit.
Be very careful also with any short application forms or online insurance applications as they do not have as many questions but they do ask you questions like if there is “any other medical matter, condition or disorder not mentioned” and if there are “any other sports or pastimes” that may affect the insurance companies assessment of your application.
You are better to list everything that you think may be an issue and this was not risk the claim being declined.
Question Any Insurance Loadings
You are entitled to question any insurance loading’s either at the time of applying for cover or at any future time.
Often if a loading has been put on a policy for being overweight or a condition like high blood pressure you can try to negotiate it down or at least question what you would need to do to get the loading reduced or removed. Often loading’s are automatically applied due to a persons BMI (body mass index) which can be quire unfair as often heavy people (sportsman etc) are very healthy and therefore by providing more information the underwriters at the insurance company can assess the risk more accurately.
After giving birth a new mother might be carrying extra weight which again affects her BMI, but this is temporary and as such should always be questioned.
The insurance company may suggest a target weight for a person at which time they would have any loading applied to their policy reviewed with the view to reducing it or removing it completely.
Question Insurance Exclusions Too
Having anything excluded from an insurance policy is not ideal but it is sometime unavoidable.
You or your insurance broker can usually get the insurance company to remove any suicide exclusion when you are replacing another policy with similar cover, and it is important to select a good policy to ensure that any other of the standard insurance exclusions are as favorable as possible.
Make sure you understand any exclusions that are added by an insurance company in their offer to you. Sometimes you will find that by providing additional information you might be able to limit the exclusion or have the exclusion removed.
Your insurance adviser can help you with what is needed to review the exclusion.
The Power Is With You!
With most life insurance policies, income protection policies or mortgage protection policies sold in New Zealand the insurance company cannot cancel of change the terms of the policy once issued, but as a policy holder you can request changes.
Many insurance advisers will suggest that you take the offer which may include loading’s and/or insurance exclusions which ensures that you have the cover in place, and then you review it within a set period to request the removal of any loading’s or exclusions.
Review Your Insurance Today
People should review their insurances when their circumstances change, but they should also review their insurance every year or so as the insurance covers are changing and there may be a better or cheaper option that would suit. You might have purchased your first home, increased or reduced your mortgage or had a baby – all very good reasons for a review.
Unlike many products, insurance can get cheaper over time as life expectancy is increasing.
If you have a loading or an exclusion on an existing policy you should definitely have it reviewed.
If your insurance adviser is not willing to help, or is not experienced enough to know how to get loading’s and exclusions removed then you are welcome to contact us here and we will help you to get the best terms we can.
Get Insurance While You Are Young And Healthy
It is an easy statement to make, but when you are young and healthy you often do not see the reason to have insurance or at least have much insurance. If you get a chance to speak to a good insurance adviser they will tell you to consider adding some future insurability to any cover that you have as this allows you to get additional insurance cover later without any medical assessment.