Why do insurance policies have exclusions?

We purchase insurance for the primary purpose of mitigating our risk by transferring it to an insurer. Life insurance, for instance, helps protect our loved ones from financial risk if we pass away. As policies often remain in place for the contract period (potentially decades), insurers require evidence of insurability to determine an applicant’s eligibility. This process is the insurer’s one opportunity to get it right by thoroughly assessing risk aspects of the application before committing to contract terms that may be in force for many years.

An insurer must assess and mitigate risk to protect plan health so it can continue to offer coverage at a reasonable price. Underwriters can mitigate risk by adding policy exclusions, which detail specific events not covered by the policy. Most types of insurance will only name what is not covered; everything else is covered. 

Life insurance policies may have exclusions for death due to hazardous activities such as back-country skiing or rock climbing. Many policies will exclude death resulting from drug or alcohol abuse. Insurers also assess an applicant’s risk related to traveling, considering factors such as the political, social, and economic infrastructure of planned destinations, and specific risks of crime, kidnapping, terrorism, accident, and the quality and availability of medical services. Insurers will refer to Canada’s travel advice and alerts when making decisions. A few special-risk insurers may be able to offer coverage without exclusions. However, the associated cost is usually very high.

All policies contain some built-in exclusions. For instance, life insurance will not provide for loved ones if the insured’s death occurs due to war (declared or undeclared), military service, or suicide within 2 years from the policy issue date. 

To discuss your insurance needs and any potential exclusions, please email insurance@doctorsofbc.ca to schedule a meeting with a licensed, noncommissioned Doctors of BC insurance advisor. 
—Hali Stus
Insurance Advisor, Members’ Products and Services


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Hali Stus. Why do insurance policies have exclusions? . BCMJ, Vol. 66, No. 5, June, 2024, Page(s) - News.

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