Mental health and insurance: what you need to know

More than two in five Australians have had a mental health condition at some point in their life, according to Australian Bureau of Statistics data. As well as the direct challenges of living with a mental health condition, it can touch your life in other ways, even if you have since recovered. This can include impacts on your ability to get some insurance.

Jennifer, aged 43 from Queensland, received treatment for anxiety and depression in the past and told Canstar about her experience of applying for life insurance. Despite being up-front about her history in the initial application, she said she had to answer what she felt were “intrusive” follow-up questions.

“I got several phone calls asking for a lot more details about my mental illness – start and end dates, medication name and dose, GP name, dates of appointments, psychologist name and contact details,” she said.

“It felt more intrusive than it needed to be.”

She said she did eventually get cover approved but it was restricted, including a block on any benefits paid in the case of death as a result of suicide.

“I’ve never been hospitalised for my mental illness, attempted suicide or had suicidal thoughts or tendencies, so the fact they felt the need to cross that section out and explain it to me in a patronising way was infuriating,” she told Canstar.

The Financial Services Council (FSC) is the body that sets standards for the life insurance industry. Its policy director for life insurance, Nick Kirwan, told Canstar it was usual for a suicide exclusion to apply for the first 13 months of any new policy.

“Applying a longer suicide exclusion would be on a case-by-case basis and would depend on the person’s history of mental health, and also the type of cover,” he said.

Read more: Getting life insurance with a pre-existing medical condition

Canstar spoke to a number of individual insurance providers who said that receiving treatment for a mental health condition does not automatically trigger a suicide exclusion.

But Jennifer’s experience highlights an ongoing problem for some people with a history of mental illness who may face higher insurance premiums and policy exclusions due to their condition. Some people may even find it difficult to get cover at all.

It can also be an issue for insurers attempting to attract customers with affordable policies, while managing the risk that comes with high rates of mental health issues in the population.

To help explain some of the myths and realities of mental health and insurance in Australia, Canstar surveyed some consumers and spoke to various people and groups with expertise on this topic.

Our guide covers tips on how to apply for insurance if you have a pre-existing mental health condition, and your options if your application for cover is denied.

Australians concerned issues with their mental health could impact their insurance

To gauge consumer perceptions of how a person’s mental health history could impact an application for insurance, Canstar surveyed 1,026 people from the general population and asked them for their views.^

Less than a quarter (24%) of people surveyed said they thought seeing a doctor about a mental health issue could have an impact on the cost or ease of getting insurance in the future. More than two in five (43%) didn’t think it would have an impact and the remainder (33%) said they were unsure.

Worryingly, more than half of those surveyed said they’d be much less likely (28%) or somewhat less likely (26%) to seek mental health treatment if it meant they’d have to pay higher premiums for insurance, or be excluded from certain types of cover.

When asked if they’d be less likely to seek insurance in the future knowing the provider would ask about their mental health history as part of the application process, almost half said they’d be much less likely (21%) or somewhat less likely (27%) to apply for cover.

Almost two in five people (38%) said they’d consider not disclosing their mental health history in order to get their application for insurance approved if necessary.

Canstar’s Editor-at-Large, Effie Zahos, said the survey results showed there was a lack of understanding of the impact mental health could have on insurance policies.

“But even more worrying is that some people are willing not to seek treatment if they would have to pay a higher premium,” she said.

When applying for insurance, people are obliged to disclose all relevant details to the potential provider when asked, and this may include any history of mental health treatment. Not disclosing relevant information when making an application may mean a future claim on the insurance policy could be denied, potentially even if the claim is not mental health-related depending on the insurer and policy you choose.

“It’s important that people do understand the terms and conditions upfront, as once something has happened it is then too late,” Ms Zahos said.

Various experts Canstar spoke to emphasised the importance of seeking treatment for any mental health condition if you need it, regardless of any potential impact on insurance applications.

The impact of your mental health on insurance

Consumers with mental health conditions have faced barriers in both life insurance and general insurance products, such as income protection, total and permanent disability (TPD), death cover and travel insurance, according to the Public Interest Advocacy Centre (PIAC).

The PIAC’s 2021 report, Mental Health Discrimination in Insurance, highlighted examples where people with mental health conditions had experienced significant difficulty and discrimination when applying for insurance products and making claims under their policies.

In a case study from the report, a woman’s bipolar disorder was well-managed with medication and she’d never been hospitalised or had time off work because of her condition. Yet three times she was declined in her efforts to increase her TPD cover or seek new income protection insurance.

The report said none of the three insurers she spoke to sought any further information on her condition or offered non-standard cover that took into account her pre-existing condition.

Some policyholders may also face higher premiums if they have a history of mental illness.

The FSC’s Nick Kirwan told Canstar the life insurance industry alone had seen a 50% increase in mental health claims over the five years to 2020.

“When claims increase, so does the cost of cover,” he said.

“That’s true of any type of insurance.”

What sort of insurance cover could be affected by a mental health condition?

Canstar has looked at what impact, if any, a policyholder’s mental health history could have across a range of insurance types.

Bear in mind, this is a general overview and the actual impact will vary based on the insurance provider and the applicant or policyholder’s circumstances.

Check with your own provider for details on what exclusions or restrictions may apply based on your mental health history.

Mental health considerations by insurance type

• Life insurance and total and permanent disability insurance (TPD) (direct from a provider or through super) and trauma insurance (outside of super only)

Applicants may be asked to disclose details of pre-existing conditions, including any history of mental health treatment. Those who have received treatment in the past may have policy exclusions for mental illness-related claims applied to their policy; and/or higher premiums. In some rare cases, cover may not be offered at all.

• Income protection (direct from a provider or through super)

Applicants are typically asked to disclose details of pre-existing conditions, including any history of mental health treatment. Those who have received treatment in the past may have policy exclusions for mental illness-related claims applied to their policy; higher premiums; a reduction in benefit period; and/or an increase in waiting period. In some rare cases cover may not be offered at all.

• Health insurance

Generally not considered at the point of application. Certain hospital psychiatric services are covered under some hospital policies. Some extras policies may include cover for sessions with a psychologist or counsellor up to an annual limit. Read more about private health insurance and mental health.

• Travel insurance

Applicants may be asked to disclose details of pre-existing conditions, including any history of mental health treatment. Those who have received treatment in the past may have policy exclusions for mental illness-related claims applied to their policy, and/or higher premiums. In some cases, cover may not be offered at all.

• Car insurance

Mental health is generally not considered in car insurance policies.

• Home insurance

Mental health is generally not considered in home insurance policies.

Source: Canstar, August 2022.

Why can your mental health affect your insurance?

Insurance companies usually base any exclusions and premiums on a policy on the risks involved in providing cover and the potential cost of claims.

The calculations involved are complex, but one key question underpins much of what goes into an insurer’s assessment of an application: how likely is it that this individual will make a claim?

The more likely it is, generally the higher the premiums will be, and in some cases, the likelihood of a claim means the insurer may decide not to offer cover.

For certain types of cover, a person’s pre-existing health conditions, physical and mental, are part of the risk calculation.

Income protection insurance is a prime example, and one of the biggest problems insurers have to deal with is the risk of people needing to make multiple claims.

The FSC’s Nick Kirwan said its research on policies over a 13-year period found that a person who made a claim for a mental health condition was 18 times more likely to make a second claim for a mental health condition, compared to someone who had never made a claim relating to mental health.

The job of evaluating this kind of risk in insurance typically falls to an actuary.

The Actuaries Institute commissioned a Green Paper on Mental Health and Insurance, written by Geoff Atkins and Sue Freeman of Finity Consulting.

The authors told Canstar that one of the issues they identified was the difficulty in obtaining relevant data to allow insurance providers to design products and premiums that cover mental health issues.

Over the years, though, they say they’ve seen change as more providers have tried to address the issue.

“There is certainly better awareness of the needs of people with mental health conditions and genuine efforts to better meet their needs,” said Ms Freeman, a senior consultant.

“However, it is still the case that many products will not cover pre-existing conditions, both physical and psychological.”

They stressed that people should not be deterred from getting help with their mental health due to any insurance concerns and should be upfront about any pre-existing mental health conditions when applying.

“An insurer can deny a claim if a previous condition was not disclosed,” Ms Freeman said.

How to apply for insurance if you have a mental health condition

Each insurance provider has its own approach for assessing applications. Experts say it can help to do your research and weigh up a range of options based on your circumstances before applying.

“There are different insurers offering different products, so you find the product that suits you,” Ellen Tilbury, Senior Solicitor at the PIAC, told Canstar.

“When making an application, it’s important to be honest and answer all the questions,” she said.

Providers assess each application on a case-by-case basis and may ask many questions about your lifestyle, occupation and health, including any mental illness and any family medical history.

The application process can be challenging for some.

Mr Kirwan said people could consider using a financial adviser as a go-between. That way, you don’t have direct contact with any potential insurer, only the adviser.

It is then down to the financial adviser to negotiate with potential providers to see what cover may be available to you, with what conditions and what premiums.

“They are likely to understand which companies have the best policies for someone with a mental health condition,” he told Canstar.

Canstar’s Effie Zahos agreed that seeking some independent expert advice could be helpful.

“It may pay to see a risk specialist as they understand the subtlety of fine print, how it varies and the impact that could have at the claim stage,” she said.

What to do if your insurance application is denied or a claim declined?

If your application for insurance is denied, there are a number of things you can do if you would like to challenge the decision. The same applies if you do have insurance cover but a claim is denied.

The Victorian Legal Aid service says that under Commonwealth and state laws, it is wrong to discriminate against someone based on a disability, and that includes a mental illness, but there are some exceptions (bear in mind as well that state and territory laws on this will vary depending on where you live).

Generally, an insurance company may decline your application if its decision is based on reasonable data or information. Its decision may also depend on the type of illness you have, how serious it is, how much it impacts you and your treatment or recovery plan.

That said, the legal aid service won a discrimination case over a travel insurance claim that was rejected on the grounds of a blanket exclusion for claims relating to all mental illness.

The case caught the attention of the Victorian Equal Opportunity and Human Rights Commission (VEOHRC) and led to a number of insurers removing blanket exclusions from their travel insurance policies.

But financial regulator, the Australian Securities and Investments Commission (ASIC), has said it still has “longstanding concerns” about what it describes as insurers’ “over-use of intrusive claims handling practices”, including around mental health and particularly in the TPD and income protection insurance industries.

“If you are concerned about a decision that an insurer has made, first ask for the reasoning that they used to make that decision,” said the PIAC’s Ms Tilbury.

“You can ask them to review its decision. If you’re not happy with that, you can consider making a complaint to your local anti-discrimination tribunal.”

Ms Tilbury said the tribunals don’t charge a fee.

You can find out more about the Commonwealth’s anti-discrimination law or check with your local state of territory organisation here:

• ACT Human Rights Commission
• Anti-Discrimination New South Wales
• Northern Territory Anti-Discrimination Commission
• Queensland Human Rights Commission
• South Australia Equal Opportunity Commissioner
• Equal Opportunity Tasmania
• Victorian Equal Opportunity and Human Rights Commission
• Western Australia Equal Opportunity Commission

After first raising an issue with an insurer, if you’re still not happy with its decision you may consider lodging a complaint for free with the Australian Financial Complaints Authority (AFCA) online at afca.org.au or by calling 1800 931 678.

Lead Ombudsman on Insurance, Emma Curtis, told Canstar that if you were denied insurance cover the AFCA would consider whether you were unfairly discriminated against. It would also ask an insurer to show if any discrimination was reasonable and based on any actuarial or statistical data.

Ms Zahos said people should explore all options they have available to them if they feel they have been treated unfairly.

“It’s important to understand that you do have rights if an insurance company rejects your claim or asks you to pay a higher premium because of your mental health,” she said.

“It’s a competitive industry so also compare, seek expert advice and if need be make a formal complaint.”

Where to go if you need information or support

If you feel like you need support with your mental health, or more information on dealing with insurance, help is available from following organisations.

• Lifeline lifeline.org.au ph 13 11 14
• Beyond Blue beyondblue.org.au ph 1300 22 4636
• Public Interest Advocacy Centre piac.asn.au ph (02) 8898 6500
• Head to Health, www.headtohealth.gov.au
• Financial Services Council fsc.org.au ph (02) 9299 3022
• Australian Financial Complaints Authority, afca.org.au ph 1800 931 678

^Canstar survey of 1,026 Australians aged 18+, conducted in September 2021.

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