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Many people fear that having a mental health condition will mean that they are automatically turned down for life insurance cover. Unlike health insurance, life insurance is not community rated. This means that insurers can charge different premiums according to factors. These factors include medical history, age, gender and lifestyle. How can this relate to mental health conditions, in particular?
How Mental Health Affects Life Insurance
Since 2001, there has been an initiative between the life insurance industry and the mental health sector. The initiative was introduced in hope of reducing the number of Australians being refused life insurance on these grounds.
Most insurers have claimed that they do not stigmatise or generalise applicants when it comes to mental health. They also state that individual circumstances are factored into risk calculations. However, a mental health condition that requires time off work or prevents an applicant from being able to work is generally considered high risk by insurers. High risks also include starting a new treatment or switching medications. This is because the insurer may consider the mental health condition unstable.
Generally speaking, you are considered higher risk if you have ever had a mental health condition. This can affect your cover. Exactly what constitutes a mental health condition varies from insurer to insurer. This can sometimes be as simple as a one-off episode of stress or anxiety.
Could You Be Refused Life Insurance Because of Your Mental Health?
Insurers can technically refuse to cover people who are classed as disabled (and this can include mental illness) if it is based on real risk. For the most part, insurers want to insure as many people as possible as this is in their best business interests.
Mental Health Australia and Beyondblue have argued that the life insurance industry may be breaking anti discrimination laws by failing to take individual factors into account when determining risk. However it’s relatively rare that applicants are rejected solely on mental health grounds. Although if an applicant is seriously ill and would be almost certain to make a claim on their policy, they may be rejected.
It will often be the case that you will be offered cover with higher premiums or cover that excludes a particular condition. Total and Permanent Disability (TPD) and income protection insurance may exclude mental health conditions. This is due to the higher probability that you may spend time off work due to your mental health. Particularly if you have a recurrent history of anxiety and depression.
Because insurers don’t have the same criteria as one another for assessing risk, it’s worth applying elsewhere even if you are rejected by a particular insurer. Many people assume that they will be rejected everywhere but this is often not the case.
Top Tips for Buying Life Insurance
If you have a mental health condition, you’ll need to be particularly vigilant when buying life insurance as things can vary depending on the insurer.
Firstly, you’ll need to be speak to individual insurers and be clear as to what they class as a mental health condition. This will vary a lot between insurers so you can’t assume that it will be the same across the board or that different insurers will see things in the same way.
In some cases, a ‘mental health condition’ may refer to things like stress and anxiety, and even insomnia. You may therefore be classed as having a mental health condition in the eyes of some insurers if you have been to the GP with symptoms of stress or insomnia.
Always pay close attention to the small print before committing to a policy and make sure that you completely understand what the situation is with regards to mental health. Will you be able to make a claim for a mental health condition or will this be excluded from the policy? Will higher premiums apply if you have a mental health condition?
The Product Disclosure Statement (PDS) should confirm these type of things but if you’re not completely sure, clarify with the insurer to avoid any nasty shocks at claim time.
It’s a good idea to speak to insurers directly over the phone, rather than using online application forms. This makes it a lot easier to clarify what you can expect from a particular policy and insurer and gives you the opportunity to ask questions about your situation before making an application.