Can you get cover with a mental illness?
Getting life insurance is possible with mental illnesses if you follow these general steps
- Speak to an insurer or an adviser. Some insurers can tell you upfront if you're covered. An adviser can get in touch with an insurer for you.
- Take your time before applying. This will allow you to gather as much medical information as possible to explain the nature of your condition and how you're treating it.
- Disclose your condition. Failure to do so could mean that you're condition is excluded without you knowing.
- Review the policy before you purchase. Make sure the policy is clear on if your condition is covered and if there any specific rules e.g. lower sum insured.
If you develop a mental illness later on can you make a claim?
If you develop a mental illness after you've taken out insurance, in some cases you can make a claim but it will depend on the type of cover you have.
Income protection insurance
Income protection claims are among the more common life insurance claims by those experiencing mental illness. Of all claims paid out by TAL in 2017, 14% were for mental health and the bulk of these were for income protection (72%).
Income protection will cover you for a short period of time if you have to stop work temporarily due to mental illness. However, you'll need medical proof that mental illness is the cause. This may vary between insurers and some will even you require confirmation from an approved doctor. Some income protection insurance policies may exclude mental illness altogether, so be sure to check.
Total and permanent disability insurance
Claiming for mental illness on a total and permanent disability insurance policy works similar to income protection in the sense that you'll need to prove medically that mental illness is the reason why you can't work. The tricky part is showing that it puts you out of work permanently.
You'll also need to consider what definition of disability you're covered for e.g. 'any occupation' means you'll have to show that the mental illness stops you from doing any type of occupation suitable to your experience.
Mental illness accounted for 23.60% of the non-fatal of burden of disease in a recent Australian Burden of Disease Study: Impact and causes of illness and death in Australia, mental health and musculoskeletal conditions.
What in this guide?
Mental illness can be defined as a condition that impacts one’s cognitive or emotional state and may affect one’s ability to relate to others or function on a daily basis. Severe disorders may substantially interfere with a person’s quality of life, while minor disorders may affect a person to a much lesser extent. A mental illness can be episodic or ongoing, and it can vary in many other ways.
This definition is very broad and many insurers will vary in it's definitions. Policies will often categorise you based on your perceived level of risk rather than relying on a strict definition. An insurer will recognise mental illness by looking at various factors during the application process.
Your premiums are affected by the perceived risk you pose to make a claim. Those with high risk factors such as those who have an existing mental health issue, are viewed by insurers as more likely to make a claim and thus are subjected to higher premiums. Every insurer is different but you can expect your premiums to be affected in one of the following ways:
- Cover you at no extra cost: They may decide that your mental health does not pose an added risk and cover you at no extra cost. You are more likely to get this if you can demonstrate that your condition is being managed and that you haven’t had any recent issues.
- Cover you at extra cost: If your insurer feels that your condition represents an increased level of risk, but not an unreasonable one, they may offer cover but at an additional cost
- Cover you with exclusions: Your insurer might offer you cover at no extra cost, but specifically without cover for certain mental health conditions. This may be their course of action if you have a pre-existing condition, or if you sought treatment or had a mental health episode several years ago but not recently. Sometimes benefits may be limited, for example, lower payouts or shorter maximum benefit periods for mental health claims.
- Deny you cover: Sometimes insurers can decline to cover people they feel are too risky. If they feel that your condition will almost certainly result in a claim or extra costs, they may be more likely to opt for this.
From a legal perspective, insurers must have reasonable and relevant information to back up their decision. You are also required to disclose this information.
- Go through the policy document. As with buying any financial you need to understand the what you're getting into and the best way to do this is to read through the policy disclosure statement (PDS). This document will contain information about how your insurer defines mental illness, if there are any exemptions or exclusions and whether or not you'll be slugged with an additional premium.
- If in doubt speak with someone. Because of the confusing nature of insurance products, it's always best to speak with someone in the know. If you're having trouble understanding where an insurer stands when it comes to mental illness, jump on the phone or online and get in touch with a financial adviser, a adviser or the insurer.
- Get specific definitions. If you do end up contacting your insurer ask them specifically how mental illness is defined. Some insurers use mental illness as a blanket term that covers everything from bi-polar to stress disorders and sleeping problems.
- Ask if it's covered as a pre-existing condition. While some insurers will cover you if you have an existing mental illness others will only provide you with cover
- Check the fine print. If you have cover through your super and you change providers, make sure you check the conditions related to mental illness as they differ between funds.
- Ask about waiting periods. Some policies may have waiting or non-claims periods for a specified amount of time. Make sure you know what these are before you apply for cover.
You are required to disclose mental health issues the same as you would any other condition. Your duty of disclosure is a legal obligation. You are required to inform your insurer of anything that may impact the type of insurance policy or level of cover you receive. In short, you must fill out all application forms accurately and answer all questions honestly.
Disclosure can help your insurer tailor your cover
Remember, your insurer cannot provide effective cover if it doesn’t know your needs, and it’s generally advisable to provide as much information as possible. Insurers are more likely to deny the claim of someone who does not disclose their full medical history in their application than someone who is open about both their condition and the steps they are taking to manage it.
What happens if you don't disclose everything?
If a customer fails in their duty of disclosure, the insurer reserves the right to cancel their policy without refund, or refuse to pay a claim.
What information will I need to disclose?
You are required to be honest about and should voluntarily provide information on:
- Any treatment you have previously sought
- Former mental health episodes or difficulties
- Whether you have ever missed work due to mental health issues
- Medication you are taking to manage your condition
- Whether you are effectively managing your condition or showing signs of being unable to manage it
- Standard information such as height, sex, weight and age.
If you have previously experienced or sought treatment for a mental health issue, then it is likely to qualify as a pre-existing condition and the insurer may impose additional loadings or exclusions, or it may decide that the condition poses little risk and will cover you as normal.
A mental health issue could be identified as a pre-existing condition if it meets one or more of the following criteria:
- A doctor or relevant medical specialist diagnosed it at a prior date
- You have experienced prior symptoms that would cause a reasonable person to seek treatment
- It’s identified as the symptom of a genetic condition present from birth
- You are currently taking medication for the purposes of managing the condition
These criteria may be interpreted differently depending on the insurer and the policy. Check the exclusions and pre-existing conditions sections of your policy’s product disclosure statement (PDS) for more details.
How insurers work with pre-existing conditions
Jason was looking for life insurance but was finding it difficult to get cover because of an incident several years ago where he had experienced a period of severe anxiety and depression but never sought treatment. To find cover, he started looking at how different insurers defined pre-existing conditions.
The first insurer’s PDS defined having a pre-existing condition as “previously experiencing symptoms that would have caused a reasonable person to seek treatment”. Under this definition, Jason’s former anxiety and depression would count as a pre-existing condition.
The second insurer’s PDS defined pre-existing conditions as ones that were “previously diagnosed by a relevant medical specialist”. Under this definition, Jason’s anxiety and depressing would not count as a pre-existing condition.
Realising that he might be able to get lower premiums with the second insurance company, Jason got a quote to compare alongside other options.
Before you get in touch
- An adviser will need to speak to an insurer about your condition. This may take some time in comparison to speaking directly to an insurer.
I’ve just been diagnosed. Should I apply for cover?
Depending on the diagnosis, it’s advisable to wait a bit before you apply. If you’re on a new treatment or medication regime it can help to give your body time to adjust, check for side effects and make sure that it’s working for you.
Why should I wait?
- Insurers avoid the unknown. If it’s too early to say whether your treatment is effective or whether there are any side effects, insurers might be hesitant to cover you.
- Gather your evidence. Being able to prove that you are effectively managing a mental illness with the help of health professionals can be a valuable feather in your cap. It’s advisable to wait a couple of months until you can show this.
What if I’m yet to be diagnosed?
If you're yet to be diagnosed, follow the following guidelines:
- Avoid self-diagnosis. For a proper medical diagnosis of a mental illness you need to show clinically significant impairment. In other words, symptoms by themselves are not enough to diagnose a mental illness, the condition needs to be having a real impact on your life.
- If you have symptoms but have never been diagnosed. Check whether any insurers consider this to be a pre-existing condition and consider how severe the symptoms are. If they are reasonably serious, you should seek treatment and you may want to find a way to manage the condition before getting cover. If your symptoms are not reasonably serious and they do not contribute to an official diagnosis, then they may not have much of an effect one way or another.
- If you have no symptoms and no diagnosis. Note that “no symptoms” is not the same as “few symptoms”, and insurers may be particularly mindful of this distinction. If you’re not sure, consider filling in a dummy life insurance questionnaire to see how it highlights potential symptoms and remember that insurers may err on the side of caution.
- Do not sign up to a policy if you're not 100% certain of what you’re agreeing to. Insurance documents are legally binding and it is your responsibility to ensure that you know what you’re getting into.
Before signing, you should know how a specific policy handles the following areas:
- Pre-existing conditions and how these apply to you
- Premiums and which loadings and discounts apply to you
- Definitions of mental illnesses
- Benefits and what you are entitled to and when
- Exclusions that may apply to you
- Reviews and when you are able to adjust the terms of your policy
Life insurance exclusions to watch out for
Exclusions are conditions in which the insurer will not pay a benefit. They are a standard part of all insurance policies. Some exclusions to watch out for if you have any mental health issues include:
- Self-inflicted injury or death. Benefits will not be paid for suicide within the first 13 months of you taking out the policy. Self-inflicted injuries are generally excluded or susceptible to a similar waiting period.
- Claims within the waiting period. Your chosen policy will typically have several waiting periods to be aware of, such as having to wait six months before making an income protection claim and three months for certain trauma cover claims.
- Unreasonable or reckless behaviour. This is a general exclusion that applies to most policies. However, if the behaviour is beyond one’s control as the result of a mental health episode, it is generally not excluded.
- Failure to follow medical advice or seek treatment. Not following the treatment plan prescribed by a medical professional or otherwise failing to manage your condition may be grounds for denying a claim.
If you're refused cover, you can contact the Australian Financial Complaints Authority (AFCA) as they handle complaints about insurers that refuse to provide general insurance. However, you can only contact FOS after you have gone through the insurers dispute resolution process.
If you believe an insurer treated yo in a discriminatory fashion because of your mental illness, there are options available to you including:
- Contacting the insurers chief underwriters and explaining to them your issue
- Contacting your insurers internal dispute resolution team
- Getting in touch with the Mental Health Council of Australia (MHCA)
- Sending your complaint through to FOS
Mental illness and the four types of life insurance
Life insurance can be separated into several different subsections of cover, and when you choose a policy you will typically need to select which types of cover you want. Depending on your chosen components, insurers will assess the risks and set costs differently. It can be significantly easier or more difficult to get cover depending on which of the following you choose:
- Life cover. This is found in all life insurance policies and provides a lump sum benefit if the policyholder passes away. Its cost is affected by one’s chances of death or terminal illness. For example, some mental illnesses have been linked to an increased risk of potentially fatal heart disease, which allows your insurer to charge more for people with these conditions.
- Trauma cover. This type of cover pays a lump sum benefit in the event of you suffering a specific disease or injury, such as cancer or a lost limb. While trauma insurance typically does not cover mental health issues, it can cover related conditions and its cost may vary.
- TPD cover. Total and permanent disablement (TPD) cover will pay benefits if you are medically recognised as being unable to work. Mental illnesses contribute to a lot of TPD claims and you should expect this type of cover to cost more if you have a history of mental health issues.
- Income protection cover. This component will pay a portion of your usual income if you’re temporarily unable to work because of health issues. Similarly to TPD cover, mental illness is a significant contributor to these types of claims and you may find it difficult to get this type of cover if you have a history of mental illness.
Anti-discrimination laws in Australia include provisions against discrimination on the basis of mental illness. However, even though 50% of Australians will be affected by a mental illness in their lifetime, there are still frequent disputes, complaints and reports of discrimination when people who have experienced mental health issues try to find life insurance. Knowing your rights, and your insurer’s rights, can help.