A pre-existing condition exclusion in a disability policy is designed to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A pre-existing condition exclusion prevents coverage for a disease or physical condition that existed before the policy's effective date, as defined and limited by the policy's look-back period and the terms of the exclusion. The purpose is to avoid adverse selection, insuring losses that have already begun to develop, while still providing coverage for conditions that arise after issue. In disability policies the exclusion is typically time-limited, and after a stated period the insurer may no longer deny claims based on pre-existing conditions that were not specifically excluded.
Why the other options are wrong
- B) The exclusion is limited to pre-existing conditions within the stated look-back period; it is not a blanket denial of all claims.
- C) Its purpose is risk selection, not premium discounting for healthy applicants.
- D) The exclusion does not modify the elimination period; those are separate provisions.
Memory hook
The pre-existing clause says conditions already brewing before the policy start stay out of the claim. A guard against buying insurance too late.