Times of India
20 July 2011

Primer
An insurance contract promises to pay the sum assured in return for a premium paid if an insured event takes place during the term of the contract. But to limit losses and to discourage anti-selection, insurance companies also make it clear that there will be some ‘exclusions’ to the cover offered. Exclusions are thus conditions that are not covered by the insurance company.

This can best be understood with an example. An individual may choose to buy a life insurance policy and then commit suicide. Though the life insurance policy promises to pay the nominee a sum assured upon the death of the life assured, a suicide is specifically not insured. It is an exclusion under the life insurance policy.

This will help limit the losses of the life insurance policy. Individual life insurance policies do not pay the sum assured in case the death has taken place due to suicide in the first year of the policy term. The same applies to group term life insurance policies, except in policies issued in lieu of employees’ deposit linked insurance where the sum assured is limited.

Exclusions are also applicable to additional benefits or riders available with the policy. Consider the benefit payable under the accident disability rider, where the insurance company promises to pay an additional sum assured if the life assured dies in an accident.

Individual life insurance policies will not pay the sum assured if the accidental death happens when the life assured was drunk and driving or was a participant in a car-racing event. There are a host of other exclusions such as deaths caused by war, terrorism, draughts or accidents incited by the actions of the life assured.

The waiting period in a policy is also a type of exclusion. This is used widely in non-life insurance policies. For example, a critical illness cover will insist on a waiting period of 180 days from the date of issuance of the policy. The waiting period protects the life insurance company from a fraudulent claim. Some insurance companies cover pre-existing diseases after a waiting period of four years. A set of daycare surgeries is also covered after a waiting period of two years.

While buying a policy, a buyer should read the exclusions in detail. The same is available in the policy brochure. If you need further clarification, you may check the policy wordings and contact the insurance company. If you are moving from one insurer to another for health insurance, double-check the exclusions in the new policy. Under the portability benefits, you are entitled to some exclusion waivers.