Avoid the insurance exclusion zone

Insurance policy exclusions make for cheap insurance premiums and more competitive insurance cover, but at the expense of discriminating against those who do not conform to the underwriters take on normal life and living. They also give insurance companies an edge in their ongoing fight against fraud and over-inflated claims.

Last month Standard Life broke industry ranks and did what several observers feel is the quickest and clearest way of demonstrating what policies do and dont cover; the insurer published details of claims it had refused over the 12 month period to November 2004, in relation to life insurance and critical illness cover.

It is believed that unsuccessful critical illness claimants number in the hundreds in a given year, principally because of policy exclusions or the insurers insistence that the full health picture was not disclosed before policy take up. Standard Lifes figures bear this out; 1 in 5 critical illness claims (88 out of 442) were rejected, nearly 60% of these not meeting the conditions of the policy. Another 33% had failed to disclose vital medical information and the remainder were refused on the basis of attempted fraud.

By comparison only 0.5% of life insurance claims were rejected by Standard Life, all on the grounds of non-disclosure of a previous illness. There are other reasons when a life policy will not pay out. Most exclude, for example, death due to alcohol or drug abuse, and if health is poor when the policy starts, certain causes of death might be excluded. If cover isnt excluded then premiums will certainly be higher where lifestyle means an added risk of contracting HIV/AIDS, or an addiction to risky sports.

Mortgage payment protection or ASU insurance invariably comes with lots of exclusions. Some illnesses may be excluded altogether; pre-existing health problems render the policy invalid; there is a deferment period before the payout begins and payment usually lasts for only a limited period (eg 24 months) anyway.

Most of us are probably more aware of the exclusions around general insurance, most notably car insurance and contents insurance. It has been estimated that 4 out of 10 people who apply for car or house cover online have difficulty in getting a quote.

For instance, high performance or customised vehicles, motor homes, convictions for bad driving, regional locality, age, experience and occupation can all upset underwriters and lead to exclusions of varying severity. Footballers, actors and publicans generally pay over the odds for motor insurance, so too do journalists (but not editors!).

Insurers are not obliged to offer cover to undefended homes in recognised flood risk areas, and in other areas the possibility of subsidence makes insurance difficult. Thatched roofs, because of fire risk and subsequent expensive restoration, also prove awkward.

Sub-letting is frowned on and should properties by unoccupied for a stated number of days then theft, malicious damage or burst pipe disasters are excluded. With house contents, common exclusions are damage caused by wear and tear or deterioration, and lack of approved door and window security.

In this world of exclusions, how do you access a policy that provides all the protection and cover you want? As always, you get what you pay for. It is essential to shop around and it is vital to read the small print. If you still cant find the exclusion-free cover youre after (protection for those celebrity legs, for example) then perhaps Lloyds of London will underwrite it for you at a price.

06 May 2005 © Moneyextra.com

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