Navigating Insurance Premium Loadings and Exclusions

With many types of insurance plans it is mandatory to complete an application disclosing any pre-existing medical conditions or hazardous activities undertaken (which usually relate to dangerous hobbies, such as rock climbing, diving or flying).

Depending on what is disclosed in the application the insurer reserves the right to alter the terms of the initial quote. The initial quote will always assume the applicant has perfect health and does not undertake any hazardous activities.

If there are pre-existing medical conditions and/or hazardous activity disclosures to make then the insurer can increase the monthly premiums (which is called a premium rating or a loading) or impose an exclusion on the plan. Naturally, for very serious disclosures the insurer may feel it necessary to decline over outright.

Had Terms Imposed? Check Other Insurers

It is very important never to assume that just because one insurer has imposed a rating or an exclusion that all other insurers will do the same. The underwriting decision can vary considerably from one insurer to another.

Depending on the disclosure, there is usually a mixture of insurers imposing a large rating, a small rating and no rate at all. This situation is exactly the same for medical or activity related exclusions.

If you have a disclosure to make or you have already been made an offer from an insurer with special terms (rating or exclusion) you should speak to an independent insurance adviser, who can contact the underwriters at a large number of insurers to see if another insurer would likely accept the risk on standard terms (given the initial information provided).

Although the underwriters at various insurers can give an initial indication of their underwriting decision it is not possible to tell for sure what the final decision will be until the insurer has a fully completed application form and further evidence (usually in the form of GP notes and/or an additional questionnaire).

What is a Premium Rating?

If an applicant for an insurance policy has a medical condition or participates in a hazardous activity then the insurer may decide it is necessary to increase the monthly premiums charged to offer cover.

With a premium loading it is usually the case that the insurer will provide cover for the disclosure but require a higher premium to reflect the increased risk associated with that disclosure.

Some premium ratings can be very significant. For example, with a life insurance loading for health reasons the rating can range from a premium increase of 25 per cent all the way up to 150 per cent.

If the loading is due to a hazardous activity the premium increase can be just as high. For example, applicants who spend a number of hours per year flying private aircraft it is not uncommon for life insurers to increase the annual premiums by around £2 per £1,000 of benefit, which would equate to an extra £16.67 per month for £100,000 worth of cover.

What is a Policy Exclusion?

Sometimes insurers decide that the risk is too high to cover even with a very large premium increase (or more accurately with any premiums rise as the chances of a claim are too close to being certain). In this instance it is very common for the insurer to place an exclusion on the plan, which essentially means that the insurer would not be liable to pay a claim relating to that health condition or hazardous activity.

If the exclusion relates to a health condition it is usually the case that not only is that specific condition not covered but nor are related conditions. For example, if an exclusion is placed on Multiple Sclerosis it is also very common for all diseases of the central nervous system to be excluded also. If the related conditions are too wide-ranging (such as for heart disease, for example) the insurer would usually just decline cover outright.

If an exclusion has been placed on a hazardous activity the insurer is stating that they wouldn’t pay a claim for anything caused or incurred whilst pursuing that activity. Just because one insurer has imposed an activity exclusion does not mean that every insurer would do the same, it is entirely possible that another insurer would accept the risk with a premium rise.

If you would like to speak to a Drewberry Insurance adviser about your specific situation then please feel free to contact us. Drewberry have advisers covering medical insurance, life insurance, income protection insurance, mortgage insurance and critical illness cover.