When you apply for Life Insurance, Total and Permanent Disability Insurance, Trauma Insurance or Income Protection, the insurer may seek to place an exclusion on a certain condition if you have had a related pre-existing illness or condition. This means that they would not pay a claim for that specific illness/condition if you needed to claim on that in the future.
Avoiding exclusions is one of the main reasons why it is important to take out your first insurance policy when you are young and you have the highest chance of having less pre-existing illnesses or conditions.
According to Skye Wealth, 31% of all insurance applications exclude mental health cover entirely.
The reason why mental health conditions are so heavily excluded across all insurers is because:
It is the third most frequent income protection insurance claim (after accidents and Musculoskeletal Issues). Source : Clearview Life Insurance Claims Report Aug 22 for FY21 period.
The recovery duration for mental health conditions are highly variable, compared to, for instance, a broken bone where the recovery duration is typically more certain.
The level of underwriting required to properly understand a person's mental health is cost prohibitive and therefore results in a 'blanket exclusion' approach. Insurers across the board are happier to lose the prospective client (and premiums) than to accept a client without a mental health exclusion.
So now that you know the state of play, what should you do?
The first and most important thing to understand if you are offered a mental health exclusion is that it does not mean the insurer is making an assessment that your condition is necessarily serious, and you should always lean on the opinions of your medical professionals instead.
The insurers are simply applying a risk adverse assessment to the dot points listed above. For example, if you are regularly speaking with a counselor or psychologist because it helps maintain your mental health at high levels, you should be applauded. However, from the insurers perspective, they will view this unfavorably and apply an exclusion due to the regularity of visits with a health professional. This disconnect has attracted much criticism, however again, it's basis generates from the 'blanket exclusion' approach to underwriting for cost reasons.
If you have had, or have, mental health conditions (including ADHD) you should speak with a Financial Planner because we can assist with:
Completing anonymous insurance pre-assessments to potentially find an insurer that would offer the most favourable terms in the market.
Recommending 'default' insurance offerings within superannuation that could be exclusion free (up to limited thresholds).
Setting up policies before you incur any conditions that would trigger a mental health exclusion in the future.
If you would like help you can:
Comments