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A changing world prompts insurance coverage review

As the United States prepares to wage war on Iraq and continues its war on terrorism, recurring yellow and orange alerts from the Department of Homeland Security have raised a red flag for some consumers about possible holes in insurance coverage.

The key question: Does my policy have an act-of-war exclusion that could cost me or my beneficiaries? The likely answer: No.

Dr. Harold D. Skipper Jr., chair of the department of risk management and insurance at Georgia State University in Atlanta, says such an exclusion is no longer standard in life insurance coverage. "They haven't been put in life insurance policies for decades," he says.

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Typically, such exclusions "were intended for individuals who would be voluntarily putting themselves in harm's way," says Herb Perone, spokesman for the American Council of Life Insurers, a trade association whose 400 member companies write 80 percent of the business. The clauses often were canceled when hostilities ceased.

"During the Persian Gulf War, many companies didn't include [the exclusions] in policies written for military personnel," Perone says.

But, notes Perone, if you have any questions on your life insurance coverage, especially if you may be traveling to a war zone, call your agent or contact the company directly.

Home, auto and accidental death policies
Act-of-war exclusions are common, however, in home, auto and accidental death and dismemberment policies.

When the formats for most of the modern-day policies were conceived, an act of war was envisioned as an old-style confrontation with a known aggressor, says Bob Hunter, director of insurance for the Consumer Federation of America, an umbrella group of 260 consumer groups based in Washington, D.C. In such a case, the industry reasoned, individual companies couldn't be expected to pay for the damage that would result.

But what about a war on terrorism where the enemy is not a country or even a party within a country?

"An act of war is a legal concept," says Perone. "Normally that's been held to be an act that occurs in a conflict between two sovereign states."

There are terrorism exclusions written into some travel policies, so check the fine print -- and the political climate of your destination -- before you leave.

Don Griffin, the director of business and personal lines for the National Association of Independent Insurers, the largest property and casualty trade group, advises consumers to check their policy and call their agent or company if they have questions.

The act-of-war exclusion "is on virtually every home and auto policy, and usually a definition of [war] follows," he says.

While a war doesn't have to be officially declared to qualify -- think Korea and Vietnam -- the insurance industry and the courts have upheld "war" to be a conflict between countries.

Those who filed damage claims related to the Sept. 11 attacks should not have been hindered by an act-of-war clause. Insurance sector leaders point out there was no war on at the time of the attack and the attack did not originate directly from a foreign government. Perhaps most telling, insurance professionals pitched in alongside of everyone else to get people back on their feet.

"Insurance is the sale of a promise," says Kathleen Sebelius, president of the National Association of Insurance Commissioners, an organization of state regulators, said in a written statement. "And, as regulators, my colleagues and I are here to make sure those promises are kept."

Changing times
When the United States is engaged in a war against another country, most experts expect that travelers to the conflict region generally would be barred from collecting on property, accidental death or injury claims.

Military personnel could face similar exclusions. The final decision would be up to the individual insurance companies, and could vary depending on the circumstances of the loss.

If America wages war with another country and there is action on U.S. soil, then property damaged as a result probably would not be covered. Likewise, companies would not be required to pay on accidental death or injury claims.

And the insurance industry, along with other sectors of the U.S. economy, is still evaluating the terror attack ramifications. "Every industry in this country is going to have to react to the situation as it develops," Perone says.

Industry gurus don't rule out changes to the way policies are written because of recent incidents.

"Policies obviously do not contemplate this type of event," says Griffin. "Companies may look at this going forward and decide they want to change the policy language."

Plan smart
For families who are doing smart financial planning, the question of act-of-war exclusions on life and accidental death and injury policies is almost moot.

"From a financial planning standpoint, the individual should not be relying on accidental-death coverage as a plan to provide for one's heirs," says Skipper.

Accidental-death policies appeal to people because they are cheap and because many younger people don't equate death with disease.

But the policies are cheap for a reason, Skipper says.

"What causes the death is immaterial," he says. "If you have a policy that pays off only in case of an accident, then guess what? You don't have a very good policy."

Dana Dratch is a freelance writer based in Atlanta.

-- Updated: March 19, 2003

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