What happens if a key person has pre-existing medical conditions?

Pre-existing medical conditions significantly impact key person insurance applications and outcomes in Australia. When applying for coverage on a key person with pre-existing conditions, insurers will conduct thorough medical underwriting requiring complete disclosure of all medical history, current treatments, and prognosis. Based on this assessment, several outcomes are possible. The insurer may accept the application at standard rates if the condition is well-managed, stable, and deemed low-risk. More commonly, the insurer will apply a premium loading - charging higher premiums to reflect the increased risk associated with the medical condition. For example, well-controlled diabetes might attract a 25-75% premium loading depending on severity and management. Another outcome is imposing exclusions where the policy is issued but specifically excludes claims arising from the pre-existing condition or related complications. For instance, a heart condition might result in exclusion of cardiovascular-related claims while other conditions remain covered. In severe cases, the insurer may decline coverage entirely if the risk is deemed too high. Importantly, non-disclosure or misrepresentation of pre-existing conditions during application can result in claim denial later - full honest disclosure is legally required under the duty of disclosure. If standard insurance is declined, businesses might explore options like guaranteed issue group insurance (if available), captive insurance arrangements, or self-insurance strategies. Some conditions improve over time - if a key person's health stabilises, businesses can reapply for coverage or request premium review after a period of stability, potentially achieving better terms.