All you wanted to know about exclusions in insurance

A life, health, term, or general insurance policy is bought with the purpose of providing cover against an unknown risk. But what if the event that actually crops up is an ‘exclusion’ under the policy you bought? Recently, doing the rounds on social media was the case of an insurance company rejecting a death claim under a personal accident policy because the deceased was riding a vehicle over 150 cc, mentioned as an exclusion under the policy. This tells us that exclusions, if left unread, can defeat the very purpose of insurance.

Exclusions are the stated legal conditions under which the insurance company will not pay your claim even for events or risks covered by an insurance policy. All insurance policies, including those that may have been standardised by IRDAI, Saral Jeevan or Saral Suraksha, will have basic exclusions. Non-standard policies may have even more exclusions.

Exclusions can take many forms. Sometimes they arise from how the policy defines terms such as accident, critical illness, lifestyle disease, vehicle condition and so on. Sometimes exclusions can specifically exclude certain events from their purview — say death precipitated by suicide, wilful self-injury or accidents due to Acts of God or war. Exclusions can also affect the extent of coverage for instance, outpatient charges or treatment of pre-existing diseases in health plans, spare replacement costs and structural and content cover in case of fire and home insurance.

Exclusions are clearly stated in the policy document. Comparing them across similar policies will shed light on the standard exclusions that are present across all policies, and help you choose policies that provide maximum risk coverage across various situations. A careful understanding of exclusions is also required so policyholders make the right choice of insurance policy that provides a reasonable cover.

Leaving out riders of bikes above 150 cc from personal accident covers, for instance, is a not a common exclusion across personal accident policies. Once waiting period in health insurance is understood, you realise the importance of buying a cover at an early age. A clear understanding can not only prevent mis-selling of insurance but may also help plead one’s right of service in-front of an ombudsman in case of refusal of claim.

Understanding the common types of exclusions is important to underline the fact that insurance doesn’t completely protect you from risks.

The most common exclusion in health insurance is the pre-existing disease (PED) exclusion or delayed coverage for some diseases. Even with hospital procedures, policies may not cover what they deem to be ‘cosmetic’ like sex change operations, plastic surgery, or dental surgeries. IRDAI has come out with simplified vocabulary that must be used in policy documents and list of exclusions, which largely simplifies the exercise.

In life or term insurance, suicide within a year is not covered by the policy and accidental death may need extensive investigation to settle the claim. Most life insurance policies will exclude death occurring due to war, adventure sports, or activities involving consumption of alcohol or drugs and criminal activities.

For general insurance common exclusions include war, civil wars, terrorist activities which apply to fire, home, or office insurances. In motor insurance, basic exclusions include the need for a geographically valid driver’s licence, driving under influence and so on. Travel insurance, which is a combination of other insurances but meant for geographies outside, carries the same exclusions of PED, consumption of alcohol and third-party liabilities.

Just because you’re insured, don’t assume you’re fully covered.

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