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Mental Illness and Income Protection

Mental Illness (depression, anxiety, stress and other related illnesses) is becoming more prevalent in society and also more common as a reason for insurance companies’ claim payments especially in regards to Income Protection. Over the past few years, the percentage of claim payments made due to mental illness is in the range of 20% of all payments made.

Mark Segreto, OnePath’s retail claim manager wrote late last year that ‘Our experience, supported industry-wide tells us that claims of a psychiatric nature are increasingly difficult to manage and often the individual may never return to work.’ If you add in further claims where mental health issues feature as a secondary complaint the real number of claims on the OnePath claims register is closer to 30% of their existing claims book.

The Life Insurance industry has made a strong effort over recent years to educate insurance companies and advisers on how to best deal with policy holders making claims for Income Protection due to mental illness. Since this work commenced, industry-wide guidelines relating to mental health conditions have been developed, and there has been a decline in the rate of refusal of Income Protection for those with a history of mental illness.

Why are we seeing such a rise of mental illness incidences?

There is no simple answer for this. We note that medical professionals such as doctors, surgeons, dentists are potentially 20% more likely to not be able to work due to mental illness and this has been attributed to the high stress nature of their occupation and also the caring, more emotional nature of their personalities that have drawn them to their occupation in the first place.

How does a history of mental illness affect your Income Protection Application?

The most important thing if you have a history of mental illness is to be upfront. Deal with a specialist insurance adviser and sometimes dealing over the phone (such is the process at Life Shield) may be a less intrusive way. Do not feel that if you have a history of mental illness that there is no point in trying to achieve full protection on your Income Protection – this is definitely not the case.

As an example, if the mental illness was due to a specific incident (such as family break up, sickness, employment…) and this negative influence has since been removed, the insurance company will be more likely to not exclude the condition.

Insurance companies deal with mental illness in a couple of ways. Firstly we see that some, more basic Income Protection policies, exclude all mental health conditions and therefore a history of mental illness does not affect your application.

If mental illnesses are covered under your Income Protection policy (and they should be), you will be required to disclose all history relating to this condition including how long ago, the medication that you were prescribed, how serious the condition was and if it resulted in you taking time off work. The insurance company will more than likely write to your treating doctor in order to receive their opinion on future risk. Ultimately it is the judgement of your future risk that will dictate whether the insurance company will exclude the condition, charge more due to higher risk, or offer standard rates.

Once your Income Protection Policy is in force, can it be cancelled due to mental illness?

No. Insurance law states that once your policy is in force and you disclosed your medical history at the time of application, as long as you continue to pay your Income Protection premiums the insurance company can not cancel the policy. The great thing about quality Income Protection policies and the current system of underwriting at the time of application is that your risk to the insurance company is calculated at the time of application, any change in your health, occupation or other risk ratings does not affect your policy cost or terms ongoing.

For more information on mental illness and Income Protection

Speak to Peter Kaleta or Carolyn Wright at Life Shield for a confidential discussion.

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After having had my income protection, with a company based abroad, for the last 15yrs I recently decided to sort it here in Australia.(Now based here so it makes sense.)
Needless to say the thought of trying to get a similar product for a good price was a concern....

Dr S.T (BDSc)
Newman, WA.

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