If you hear this, your adviser may not have explained things as clearly as they could have. 

'Terms' is industry slang or jargon for special terms, which means a client's policy has been modified, by the insurer, from the original standard policy contract your cover was proposed on. 

The offer of terms or special terms offer generally happens at application time, but can be applied during the policy or at claim time. If the insurer becomes aware of a material fact, that will change the terms of the contract the insurer would have offered at application time. Avoid the later two examples as they can have unintended and surprising outcomes. 

So what are 'terms'?

Terms are one of two things, an exclusion or a loading.

I'll talk about exclusions first.

An exclusion is where the policy is made not to pay if a specified condition or situation arises. These are applied when the insurer assesses a risk outside of the acceptable risk they are prepared to cover. There are a number of approaches the insurer can take with this.

Standard policy exclusions; when you read your policy document, a good place to start is the exclusions section, this is the area where the standard policy exclusions are listed, and this will tell you what the standard policy won't cover. This does need to be read in conjunction with what the policy does cover as some insurance is only for specified conditions. Special Terms Exclusions will be additional to any standard policy exclusions. 

The most common Special Terms Exclusion situation is a direct exclusion for a pre-existing medical condition you have. For example, you broke your ankle, and you have screws from your treatment still in your ankle, the insurer will exclude disabilities relating to your damaged ankle from your medical & income protection policies, but they probably won't from your trauma and life policies. I say probably, assuming there are no complications to your recovery.

Another approach could be to exclude a specific benefit under a policy, often used with trauma cover. For example, you have had a cancer diagnosis and recovered. Because you have had the condition the chance of it re-occurring is high, the insurer will exclude it for a trauma claim but they may not for your income protection and life cover.

In some situations, insurers can assess your risk quite severely and apply a wide-ranging exclusion. Understanding what is excluded is important to judge what your cover will cover you for. 

A good example

An April fools joke a number of years back with an underwriter I worked with, demonstrates how wide an exclusion can be, he had an adviser submit a bogus application with a long list of medical conditions for the Jane Doe applicant. The Adviser was having his underwriter on, the underwriter having a sense of humour, put a fitting reply together. 

He was offering cover for Jane with an exclusion for her skin and all its contents. 

To qualify this, it was a joke and a situation like this would likely have been a decline of cover in the real world. Insurance companies will work to find a balance, mitigating their risk while still offering cover of value to the policyholder.

My point is understanding the exclusion is important, so you know what you are actually covered for. 

Mental Health

Another common income protection exclusion is for, mental health conditions. People often get upset with this exclusion on their policy, but insurers see a significant proportion of their claims relating to mental health conditions. If you have had a mental health condition, medicated or not, expect your new income protection policy to have a mental health exclusion. 

I often hear, but that was a long time ago, and it was situational, and I'm well clear of this. While this may be true for you, the insurers experience is different and past experience is often a good indicator of future experience. Think about it this way, if it's not a problem for you and you won't ever expect to claim for it, then what does it matter that it is excluded? 

If you think it's a possible problem in your future, then the insurer is justified in applying the exclusion. Either way, the insurer has probably got it right, remembering claims impact your premiums and those of other policy holders, so managing foreseeable claims is good for all policyholders. 

As an Adviser, I don't make the rules in this area, and we have very little influence in changing underwriters decisions where mental health challenges have been a part of someone's medical history, so please don't shoot the messenger. ;)

That said in recent times we have had some instances where we have been able to have mental health exclusions removed or avoided. This happens very rarely but is possible in certain circumstances.

Loadings and increased premiums

The other way special terms are offered is to charge a higher premium for the increased risk someone represents. This sits between a standard policy and an excluded policy in that you still have the cover, but you have to pay more for it.

There are two approaches to loadings, per mille and percentage. The per mille approach to loading is often used for more extreme risks where cover can be offered, but an exclusion is not possible. For example, if you are working outside and above 10 metres the insurer may offer the cover with a $5 per mille loading for your life cover as the chance of you surviving a fall from this height is slim. What this means is for every $1000 of cover the insurer is going to ask you to pay $5 per annum extra over and above the standard premium. So for your $100,000 of cover at say $17 per month you will have to pay $500 per annum more for you cover, or $58.67 per month. Quite an increase. In some situations we do get an exclusion option, so you do have a choice if the risk and premium are extreme.

The other approach to loadings is a % based approach. Usually, this is calculated in 25% increments above a 50% loading. So what does this mean? Well, a 50% loading means you will pay 50% more in the premium over and above the standard premium for your policy based on your age, gender, smoking status, etc. So if your premium was a standard $100 per month and you were loaded 50%, your monthly premium would be $150 per month.

What can you be loaded for? Just about anything, which is why this is used to include cover for you when your risk is not standard. People don't like this when it happens, but the important thing is you can access cover, and you can have it. 

Some examples where a loading may apply; 

• Height and weight, where you're heavier than what is medically recommended to be your normal weight, my article on BMI is worth reading if you want to explore this further.
• Past drug use, if this is the case, we can often source cover sometimes standard and sometimes at a higher rate. The situation will dictate how the insurer will insure you. Disclosure is required as you don't want a claim avoided down the track because it wasn't.
• Medical conditions, elevated cholesterol, high blood pressure, abnormal tests. So long as the condition is managed and is stable, the insurers can often look to offer cover. Again sometimes it's standard premium sometimes it's loaded.

Serious medical conditions, however, can be a different story and become the point at which insurers start excluding things. What you consider to be managed the insurer may look at as a serious medical condition. Sleep apnea, heart conditions, diabetes, liver and kidney problems and past cancer treatment are all considered serious in the insurer's eyes. This is not an exhaustive list but some of the most common conditions. You may not see it this way, have a chat with your insurance adviser before you decide it's not worth it, so you have clarity on what you can get cover for.

There are a lot of people in our society who can't get cover at all, choosing to be without cover when you can get it and need it, won't help you or your family if something does go wrong. 

Have a chat with us about your options so you know.