Navigating life insurance: Loadings and exclusions explained

When you apply for life insurance, the insurer looks at various factors to decide what cover it is prepared to offer, and the premium it will charge for that cover. Sometimes, they might charge a higher premium to reflect the additional risk (called a loading), or they might not be able to cover a certain condition or risk (called exclusions). This does not mean you can’t get life insurance at all, just that you might have to pay a loading or a certain condition is excluded from the cover. These are explained in more detail below:

Loadings: Paying more for higher risk

Loadings in life insurance mean you might have to pay more because the insurance company thinks you’re riskier to insure. Here are some situations that could lead to loadings in your life insurance:

Health conditions: If you have pre-existing medical conditions or a history of health problems, the insurer might increase your premium.

Lifestyle: If you have a higher risk lifestyle, for example if you smoke or participate in risky sports, you may be charged higher premiums.

Exclusions: When something isn’t covered

Exclusions in life insurance mean that the insurance company won’t pay a claim in certain situations. Here are some common exclusions you might encounter:

Suicide: Many life insurance policies have a suicide exclusion, usually for the first two years of the policy. If the insured person takes their life during this time, the policy won’t pay a benefit.

Misrepresentation: If you provide false or misleading information during the application process, the insurance company might avoid (cancel from inception) or vary the policy. This may mean your claim is denied.

What it means for you

It’s important to understand loadings and exclusions in life insurance so you can make informed decisions before taking out cover.

Paying more: Loadings can make your life insurance premiums higher. If you are in a high-risk category, you may need to be prepared for higher costs.

Limited coverage: Exclusions mean certain situations won’t be covered. Make sure you know what is excluded and consider additional coverage if needed.

Risk management: You can actively work towards lowering your risk factors. Things like quitting smoking or increasing your daily step count will ensure you are healthier, which could potentially reduce the impact of loadings on your premiums.