The Truth about Terrorism Exclusions on Life Insurance

"No words"​ Image credit, Richard Lemmens: https://www.linkedin.com/in/richard-lemmens-65521b60/

I recently caught up with a client of mine who alerted me to this Stuff article: Insurers waive terrorism exclusions for Christchurch shooting victims. My client wanted to know whether his policies held such terrorism exclusions should he, or his family, ever be unfortunate enough to be entangled in an act of terrorism. I was quick to assure him that his life insurance had no such exclusions. Being an Insurance Adviser, it’s my job to stay up-to-date with the activity of the ever-changing insurance landscape, so I was quick to get back to the office and find out what was going on.

What is right?

Insurance companies AA, AMI, State, Vero and Tower all contain clauses which allow it to decline any claim for damage to property caused as a result of acts of terrorism. Thankfully they are looking at waiving these exclusions for the Christchurch victims. "We're doing this because it's the right thing to do in these circumstances; we're here to support our customers and community," IAG spokeswoman Jess Etheridge said. The right thing to do; It’s always nice to hear insurance companies say that!

These kinds of terrorism exclusions have been around for a long time. They are the parts of policies that clients who are without advisors typically skim over when considering their insurance options. Most consider the likelihood of a terrorist attack so low that the exclusion is not worth worrying about. But it seems in light of the tragedy in Christchurch there has been a shift in the perceptions of the likelihood of terrorist attacks, hence my client getting in touch with me.

The article refers to house, car and contents insurance whereas my expertise is in life, health, income protection, disability and trauma insurance. Simply put, that is any cover that involves a person and their health. I had to stop and think to myself: What about life insurance claims?

"No benefit will be paid if the death of the Person Insured is caused by war, invasion, act of foreign enemy, hostilities (whether war is declared or not), civil war, military or usurped power, rebellion, revolution, insurrection, riot or civil commotion."

How are most policies?

Until recently, it was common for life insurance products of what I call B-class life insurers to exclude war and terror in their policy wordings. “B-class” is not official industry terminology; I use the term to refer to product suites that are rated 3.5 stars or lower by insurance raters such as QPR Limited. Typically these are lower rated products than those provided by your mainstream, larger insurance companies such as Sovereign, Asteron Life, AIA, Fidelity Life, Partners Life and AMP.

In light of the article, I did some digging and found that many of the B-class insurers who used to exclude war and terror had since updated their policy wordings. An ANZ Lifestyle Insurance policy document from 29 October 2012 reads:

"No benefit will be paid if the death of the Person Insured is caused by war, invasion, act of foreign enemy, hostilities (whether war is declared or not), civil war, military or usurped power, rebellion, revolution, insurrection, riot or civil commotion."

Civil war, insurrection, civil commotion? It seems to me what they’re trying to say is, should the world end and society ravage itself don’t bother trying to claim on insurance. Jokes aside, it seems ANZ’s latest policy document has no such exclusion, which is excellent.

I spent some time looking to see if any life insurance policies sold in 2019 had any similar exclusions, and I was shocked to find this cover from Countdown Insurance, underwritten by Cigna.

"We will not pay any benefit under this Policy if: The claim is due to war, invasion, terrorism, hostilities, strike, riot and/or civil commotion, civil war, rebellion, revolution, insurrection, military or usurped power [...the policy continues]"

The good news is there is no such exclusion in any of the mainstream insurers life insurance policy documents.

Know thy...

So, what's the point of this little message then? It was Socrates that boldly pronounced that one should Know Thyself. As true as that is, Rees Thomas Financial Services believes you should Know Thy Policies. When you're buying or reviewing any insurance product, make sure that you thoroughly read the policy wordings. Another option is to take advice from or buy through a registered financial adviser.

Remember, "No enemy is worse than bad advice." If ever you’re not sure about your policies contact Sam Rees Thomas for a chat.