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Exclusions & Loadings
What are they? Are they fair?
To understand exclusions and loadings, we first of all need to understand the basics of insurance.
A group of people (policy holders) get together to form a group and pool funds (premiums) so that if one or more of them should suffer an unexpected event that affects them financially, they will be able to withdraw money from the group pool (claim) to assist them in their financial need. The pool of money is managed (insurance company) to make sure there is always enough money in the pool to pay for unexpected events, and also to determine who can be part of the group (Underwriting), and on what terms they can become part of the group.
If someone new applies to be part of the Group but is found to already have circumstances in their life that make them "more likely" to need to withdraw from the group fund pool, then it is only fair to the others in the group that the new person "pays more" (loading) into the fund pool OR has certain conditions placed on them (exclusion) that determines when they can or cannot withdraw from the fund pool.
Exclusions and Loadings are proposed within the Offer of Terms after an application has been assessed by the Underwriter.
Exclusions can be in regards to particular health conditions and also future effects of those health conditions. Exclusions can also be in regards to pastimes, for example Parachute Jumping.
The Underwriter may choose to use a Loading - an increased premium. For example the person applying might be significantly overweight, meaning their chances of having multiple health problems is increased. High Blood Pressure, Heart Attack, Joint problems.
Exclusions or Loadings are often reviewable after a period of time (for example 2-3 years) or may be for the life of the policy.
Sometimes people think if they have one or two exclusions on their policy, then the policy is not worth having, but forget that the policy still covers them for many many conditions - possibly hundreds or thousands of health problems and potential claims. Loadings can often be reduced over time as health improves, and can sometimes be the needed motivation to take steps to improve health.