Premium Ratings and Policy Exclusions

Have you applied for insurance and been told there will be a contractual exclusion or increased premium?

It’s more common than you might think.

When a broker provides you with a life, disability or health insurance proposal, the price and contractual benefits assume that you are eligible as quoted.

Insurers will not make you an offer of insurance unless the odds of making a profit are in their favour and most people will receive an insurance offer exactly as quoted. However, there are times when an insurance applicant represents a financial risk that exceeds the insurer’s assumptions due to a pre-existing health condition or participation in a hazardous activity. In these cases, the insurer may decline to offer a policy, or offer a policy that is subject to a premium rating (extra premium charge) or policy exclusion.

What is considered a pre-existing health condition?

Any known health condition that existed prior to your application is a pre-existing condition. These may be conditions you were diagnosed with just prior to your application, or for certain conditions, many years after you last sought treatment.

What are considered hazardous activities? 

Hazardous activities include anything that puts you at an above average risk of serious injury or death. This may include deep water scuba diving, piloting a recreational aircraft or rock climbing. It could also include planned travel to destinations where there is a significantly increased risk of injury or death from acts of war, terrorism or violent crimes.

What is a Premium Rating?

A premium rating is an extra charge to reflect your additional financial risk to the insurer when compared to an average applicant. This is typically expressed as a multiple of your quoted premiums and can range from 25% to 150% or more.

What is a Policy Exclusion?

Sometimes insurers decide that the risk is too high to cover even with a very large premium increase. In this instance, the insurer may impose a policy exclusion. This means that the insurer would not be liable to pay a claim relating to that excluded health condition or hazardous activity.

Policy exclusions can be very specific. For example, any claims related to a chronic knee injury. They can also be broadly stated to cover related conditions that are difficult to distinguish from, or caused by, the pre-existing illness or condition. A policy exclusion for Multiple Sclerosis may include all diseases of the central nervous system.

If a policy exclusion has been placed on a hazardous activity, the insurer will not pay a claim for anything caused or incurred whilst pursuing that activity.

What are your options if you are offered a policy with a rating or exclusion?

Naturally, some insurance applicants will be upset to discover that an insurance company modified their initial offer. In my experience, most see it as unfair, but there are other ways of looking at this and most people have options.

a) Ask the insurer to reconsider

Occasionally, the insurer will reconsider the need for a rating or exclusion if new information becomes available or a specific period of time has passed. For example, an insurer may be willing to remove a back exclusion if a specific number of years pass without any reoccurrence or further treatments for that condition.

If you go this route, remember that it may be up to you and your broker to remember to ask for a reconsideration of the original decision years from now.

b) Shop around

Not all insurers will view certain health conditions or activities in exactly the same way. If you are offered a rated premium, policy exclusion or even a decline, an experienced broker should be able to advise you if it’s worth trying other insurers for a more favourable decision. However, don’t simply jump on the next offer without carefully considering the total cost and any contractual differences. Even with an added premium rating, it’s still possible that your total lifetime cost is lower when compared to some insurer’s standard rates. If your broker thinks it’s possible to find an insurer that will make a better offer, make sure you consider these factors.

c) Don’t worry about it

Suppose you applied for a disability policy and the insurer wants to exclude any claims related to your arthritic knees. Why is that a huge problem? It would be for someone that works on their feet all day, but if you are like most lawyers, it would take more than knee pain to keep you from working. Why concern yourself with an exclusion if there is virtually no chance you would make a claim even if it was covered? If you really do expect a condition will lead to a claim, is it a reasonable expectation that the insurer agrees to give you full coverage when a claim is all but a certainty?

What if you are declined?

You may still have options. Depending on your age and the amount of coverage you require, some insurers can offer you individually owned life, disability and health policies that don’t require you to submit proof of good health. Non-underwritten protection may also be available through an employer group insurance program.

Please note that my advice is not intended to replace that of a qualified insurance expert who has personally reviewed your specific benefits and insurance needs. If you want to learn more, the Canadian Bar Insurance Association (CBIA) offers excellent insurance education articles and planning tools for lawyers at www.barinsurance.com. You can also find your local insurance sales representative who can assist you with your insurance questions and needs.