Policy Exclusions

Policy exclusions define the boundaries of insurance coverage in Australia, clearly stating what circumstances will not trigger benefit payment despite otherwise valid claims. Standard exclusions appear in all policies of a given type and typically include: Suicide within 13 months of policy commencement or benefit increase (preventing adverse selection where suicidal individuals obtain coverage); Self-inflicted injuries whether sane or insane; Death or disability while committing serious crimes; War, acts of war, terrorism in some policies; Pre-existing conditions not disclosed during application; Childbirth and pregnancy for disability policies (covered under separate circumstances); Cosmetic procedures unless reconstructive following accident or illness; and Intentional or reckless acts. Specific exclusions apply to individual policies based on underwriting assessment of applicant's health, occupation, or activities: Medical condition exclusions remove coverage for claims relating to specific diagnosed or historical conditions (e.g., excluding all claims relating to previous back surgery, or excluding mental health claims for applicant with depression history). Occupation or activity exclusions prevent claims arising from specified dangerous work or hobbies (e.g., excluding claims from injuries sustained while motorcycle racing, or excluding claims from specified high-risk work activities). Geographical exclusions in some international coverage policies. Exclusions must be clearly disclosed in Product Disclosure Statements and policy documents, highlighted to applicants, recorded on policy schedules, and explained during sales process. The Insurance Contracts Act 1984 Section 54 provides crucial protection: exclusions are unenforceable if the insurer cannot prove the excluded matter caused or contributed to the loss. For example, a mental health exclusion cannot be used to decline a claim for cancer diagnosis; a back injury exclusion cannot decline a claim for heart attack. This prevents insurers from using exclusions to avoid unrelated claims. Permanent exclusions typically remain for policy life, though some insurers may remove them upon review if circumstances change (e.g., removing mental health exclusion after 5+ years claim-free with medical evidence of sustained recovery). Temporary exclusions are rare in life insurance but may appear in some products. Controversial exclusion practices include: Broad exclusions capturing more than specific underwriting concern (excluding 'all musculoskeletal conditions' when specific back condition was the underwriting concern), Mental health exclusions applied routinely rather than based on specific risk assessment, Exclusions not clearly explained at sale leading to unexpected claim decline, and Refusing to consider exclusion removal despite changed circumstances. Consumer strategies regarding exclusions: Fully understand all exclusions before accepting coverage, weigh whether limited coverage with exclusions provides value vs no coverage, disclose all relevant information during application to minimize risk of broader exclusions, consider shopping multiple insurers as different underwriters may offer better terms, request regular exclusion reviews if circumstances improve, and ensure exclusions are specifically worded not overly broad. Recent regulatory focus ensures: Clear prominent disclosure of exclusions at sale, Plain English explanation of exclusion scope and impact, Opportunity for applicants to discuss exclusions before proceeding, Annual reminders of exclusions in policy documentation, and Fair application of Section 54 protections preventing exclusion use for unrelated claims. Financial advisers must carefully explain exclusions to clients, assess whether excluded coverage represents main policy value, compare exclusion approaches across insurers, and ensure clients understand claims that would and wouldn't be covered given their specific exclusions.