Life insurers' exclusions allow them to avoid paying claims

If I turn on the television and see that advert with the child purposely tipping milk on the floor one more time, I might clout him.  

Metaphorically speaking of course, because clouting became an exclusion in the parental policy document long ago.  His poor mother has one hand on the life insurance price and the other hand diverting small disasters.  

For all those Mums and Dads out there chuckling at her smooth parenting skills mixed with multi-tasking an insurance purchase, let me tell you a secret.  She's mucking it up big time.  Failure to apply both ears to the task at hand, failure to ask questions and failure to compare features may well lead to a bigger disaster that spilt milk and a dead goldfish.  

But congratulations to her and the company advertising the life policy, because all insurance is better than no insurance and they're doing a grand job making us think about it.  

Buying a life policy is better done with an adviser in your front room and all those kids locked in the back room.  Let them trash the place while you concentrate, because the mess is easier to clean up than a bad policy document.  

In fact industry researchers QPR  openly admit that the wording in policies sold by financial advisers is better and less out-dated than those sold directly to the general public.  

We could bury ourselves alive in the geek-sport of fine print and drown in puddles of size eight font if we tried to analyse every section of a policy.  

That's what the research companies are for.

Suicide, illegal acts and civil commotion 

Let's take a look at one small part of a policy document to give a taste of the issues.  The exclusions.  These are the pesky little situations where an insurer will not pay out.  Suicide, drug and alcohol abuse, HIV, unlawful acts, war and canyoning are some of events that can lead to non-payment if you die doing them.  

Suicide is hard to get around.  There is always a 13-month period where you need to stay alive after buying the policy.  No idea why the industry picked the unluckiest number in the universe as a stand-down period.  Yet ANZ just introduced a 36-month period for suicide.  

Why?  

Probably just because customers won't notice or compare.  

In fact the banks are a bit heavy on exclusions.  BNZ can refuse to pay out on deaths caused by drug abuse, HIV, unlawful acts and war.  War doesn't even have to be declared, it just needs to be war-like.  It also includes civil commotion.  

As someone who landed in Greece on the day of the 2015 default and will touch-down in Paris next month, I'm not keen on those civil commotion and war-like exclusions in my policy.  Lucky mine is with AMP, bought via an adviser and includes only one exclusion – the 13-month temporary suicide clause.  None of the others exist.  

To be fair to the banks, Westpac and ASB Life Policies only have the one suicide exclusion too.

According to QPR there are six insurers with the war exclusion.  Let's hope you are the stay-at-home type if you've bought one of these policies.  

Four insurers say they won't cover you if you die while involved in an unlawful act, whether you are convicted or not.  So what if Dad goes a bit mad and tries one of those legal highs, which are now illegal, and has a reaction resulting in death?  Who pays the family mortgage if the life policy won't pay out?  What if Mum has three glasses of wine and ends up in a fatal accident?  

Of course these are all daft acts, but quite a number of insurers allow you to die this way and will pay out.  Those who exclude these acts may still pay out.  But it will be at their discretion.  Does your family really need the battle?  The researchers QPR feel most of the exclusions are out-of-date and should be removed.  

We've only covered one tiny section of an insurance policy.  Can you  imagine what awaits if we apply the geek-glasses to the rest of it?  

My suggestion?  Ring an insurance adviser to avoid buying a boo-hoo policy.  

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.