The unfair mental health exclusions in life insurance

If you enter a life insurance policy, it’s important to disclose your full medical history including anything mental health related. Otherwise you may find the insurer won’t pay your benefits under your policy, even for non-mental health related conditions.

One in five Australians aged 16 to 85 will experience a mental illness in any year. Even if you’ve never had a mental illness, blanket exclusions for mental health conditions might apply to your life insurance policy, so it’s important to read the fine print.

Why is it important to disclose mental health conditions?

When you’re filling out a life insurance, income protection or total and permanent disability (TPD) insurance application, insurers generally require that you disclose your medical history. This includes mental health issues such as any episodes of anxiety, depression, stress, or other psychological conditions.

If you disclose that you have received treatment for mental health issues then an insurer may impose a broad exclusion on your insurance policy for any mental health related condition. For example, if you’ve seen a GP or psychologist because you’re feeling stressed or anxious, your insurer might apply this exclusion to your policy.

How much of my medical history and mental health treatment do I need to disclose?

It’s important you accurately disclose your entire medical history when applying for life insurance, including even minor issues or treatment that occurred a long time ago or has since resolved.  

The standard question insurers ask is, ‘Have you ever seen a doctor due to anxiety, depression or stress?’. This broad, open-ended question can make it difficult for anything to come to mind. You’d probably remember any recent mental health treatment and consider a recent issue worthy of disclosing, but what about a simple matter of stress that dates back many years? Or that session you had with a psychologist after your relationship broke down?

It might not seem like a big deal, or it might have slipped your mind, but these small details can be the difference between having a future insurance claim paid or declined - which is why it's so important to provide a thorough mental health medical history, no matter how small or how many years ago the treatment was. 

Failure to disclose mental health issues and its impact

Failure to fully disclosure any mental health issues or treatment can allow insurers to not only deny a claim but also to “avoid” the insurance cover, as if it never existed.

This means an insurer could refuse to cover any claim under the mental health exclusions in the insurance policy, even if it’s completely unrelated to the matter that was not disclosed. This can happen even if your non-disclosure was an innocent oversight.

Take one of our clients, for example, who stopped work due to an inner ear imbalance caused by a failed operation. He made an income protection claim, only to have his policy avoided by the insurer because he’d been diagnosed with a mental health problem many years ago, which he hadn’t disclosed.  The fact that he considered his mental health condition had long since recovered did not stop the insurer from rejecting the claim.

This is quite common. A lot of people going through an insurance application process are mindful of their current health, but not so much of their entire medical history. Forgetting a certain period in your life can prove disastrous.

Blanket mental health exclusions in insurance policies

Some insurance policies, particularly travel insurance policies and injury/accident policies, won’t cover you for any claim arising from a mental health condition. That means that even if you have no history of mental health problems, if something were to happen in the future and you needed to take time off work or otherwise claim for a mental health condition claim, you couldn’t.

It’s important that you carefully read the product disclosure statement for your insurance policy and consider what you are and aren’t covered for, and whether your policy covers mental health conditions.

It can pay to shop around to find an insurance policy that does cover you for mental health conditions, if something were to happen in the future.

What industry changes are needed to address mental health exclusions in insurance policies?

When you purchase an insurance policy, you deserve disclosure about what that policy covers you for. We have been calling for major industry change to make these pitfalls more transparent for consumers:

• The insurers’ information-gathering process. The insurers’ process can be improved with targeted questions rather than the broad questions they currently use. This would reduce confusion about what people need to disclose.
• Better sharing of information. At the moment, an insurance policy is completely dependent upon your memory. If you had access to reliable records, there’d be little risk of you forgetting to disclose anything.
• Proper training for financial advisors and brokers. Insurance brokers need to be properly trained, so they can inform applicants of potential implications. Currently, there aren’t sufficient incentives for them to have a robust, thorough process in place.
• No more unfair exclusion clauses. Mental health conditions are common and most people will have an issue though their lives, but it will resolve in time. It’s unfair that a single episode of stress, caused by problems at work or a family member’s death, can mean that you can’t claim for a serious and unrelated problem in the future.
• Remove discriminatory exclusion clauses. Insurers should not impose exclusions that are not justified by statistical data, and the data relied upon should be available to the public.

How can you protect yourself from mental health exclusions in your insurance policy?

If you’re applying for insurance of any kind, the best thing you can do is be aware of the impact your answers can have on future claims. You should also:

• Engage thoughtfully in the application process and ask questions when you’re unsure.
• Check with your treating doctor if you are not sure about your medical history.
• Be careful about broad questions about your medical history. Remember, these questions are unlimited by time and go right back to your childhood. When in doubt, include the information.
• If you do have mental health history, be sure to disclose it. You may need to shop around to find an insurer who will cover you, and this may incorporate a higher premium.
• If you can’t recall whether you’ve ever seen a doctor for stress, anxiety or depression, state that clearly on the application. You can then provide the name of your doctor(s) and it’s up to the insurer to investigate if they choose to.
• Make sure you’re covered for mental health conditions.

While the current system is by no means the best approach, being thorough and honest during the application process will likely help you out in the long run.

If you’re worried about how a mental health exclusion might affect your insurance policy, read more about superannuation and insurance or contact us today.