Life insurance rejecting payouts: How bad is it and how can you avoid it?
Many Australians who disclose a mental health condition during their life insurance application are being rejected.
A recent enquiry from the Life Insurance Code Compliance Committee (Life CCC) has found that some life insurers are using blanket mental health exclusions or still relying on tight underwriting practices, restricting the amount of Australians seeking cover.
During its enquiry, the Life CCC reviewed 48 mental health underwriting guidelines across 6 insurers, focusing mainly on income protection (IP) and total permanent disability (TPD) products.
These policies are the most common to have mental-health rejections or denials.
According to the Australian Institute of Health and Welfare (AIHW), approximately 1 in 5 Australians aged 16-85 experienced a mental health disorder in the last 12 months.
17% experienced an anxiety disorder, one of the conditions Life CCC found to be the most commonly rejected, even for milder cases diagnosed 5 years ago.
And unfortunately, this over-reliance on exclusions could be preventing several Australians from getting the cover they need to protect loved ones.
Life CCC Chair, Jan McClelland, says many Australian insurers are in need of a serious refresh.
"Mental health conditions touch millions of Australians, and the Code is clear: insurers must assess each customer fairly, based on their own circumstances," Ms McClelland said.
"Compliance with the Code isn't optional. And insurers that still use blanket exclusions must improve to meet the Code's standards."
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What's being done to rectify the life insurance coverage catastrophe
Despite mental health being the leading driver of life insurance claims in Australia, the committee has issued its recommendations to better support underwriting best practice.
To reduce the number of unfair application dismissals, insurers should begin amending their product's definitions and terms to remove any blanket mental health exclusions.
The committee has also encouraged insurers to only apply mental health exclusions if there are fair, evidence-based circumstances and utilise better practices on how insurers underwrite applications involving mental health.
"With the right data available, insurers can gain a clearer picture of how they're dealing with mental health disclosures and make decisions that are more considered, transparent and fair," says McCelland.
While it may take time for new procedures to come into play, Australians with mental health conditions can still get the cover they need for life insurance or IP.
A quick review of the Finder database revealed that TAL and Zurich, two of the biggest underwriters for life insurance, both offer mental health coverage.
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