Personal insurances such as Income Protection, Life insurance and Total and Permanent Disability (TPD) are becoming impossible to get unless you are in perfect health. This change has occurred gradually over the past few years but has now reached the point that it’s become a real concern. This has a number of consequences which I discuss below.
Insurers have a bad name
We heard some shocking stories last year via the Banking Royal Commission about insurance companies including questionable and even unethical sales tactics, unreasonably denying paying claims and so on. I’m not sticking up for the insurance companies. Their tactics are boarding on criminal. However, also, a big contributor towards these problems is that people don’t understand what they are buying.
When it comes to insurance cover, the advantage of “no questions asked” might seem convenient, but it just isn’t in your favour. You want to ensure the insurer comprehensively underwrites your cover before they put the cover into force. This includes asking you questions, undertaking medical checks, reviewing medical history and so on. Doing so leaves them less room to use the excuse of a “pre-existing condition” to deny any future claim.
Also, it’s important to understand the quality of the policy. Quality refers to the terms and conditions and definitions within a policy document. These all impact how comprehensive the cover is. If you get these two things right (i.e. quality and underwriting), you are much less likely to experience problems or nasty surprises down the track.
What has changed?
It is the underwriting and assessment process that has changed over the past few years. Insurers are, in our opinion, being over-stringent.
Normally, if an insurer believes that you have a pre-existing health condition, they can take one of four actions:
- Approve the cover anyway (this is very unlikely); or
- Add an exclusion on the policy (meaning that you are not covered if that health concern causes you problems); or
- Add a loading onto the premium (i.e. charge a higher premium); or
- Decline the cover.
A policy exclusion or outright decline are the most common outcomes – even for minor, inconsequential, asymptomatic health conditions! Lately, it seems that unless you are in absolutely perfect health, it is difficult to obtain exclusion-free insurance cover.
Do health concerns have to be major?
In short, no. This is what is so frustrating i.e. getting a decline or exclusion for a minor past medical condition. Some examples include:
- A back exclusion for a client that liked to get relaxation massages spasmodically.
- An elbow exclusion because a client had a once-off tennis elbow injury caused by a lot of typing during an intense study period. The injury was not ongoing, and client was symptom free.
- Spine exclusion based on regular chiropractic visits for preventative reasons only (client plays a lot of sport) – no injury treatment.
- An insurer limited the clients benefit period to 5 years (period usually expires at age 65) plus added a 75% premium loading because the client worked long hours and had a high cholesterol reading.
Mental health has become a ‘challenge’
In Australian, mental health conditions are the third most common cause of TPD claims, and the second most common cause of income protection claims. As such, insurers are becoming more conscious of these risks and mental health exclusions (and even declines) are becoming more common.
We have had situations where a client has proactively attended counselling and, as a result, the insurer included an exclusion in their insurance policy. Surely the act of seeking proactive counselling demonstrates good mental health practices! And taking these proactive steps would surely reduce the likelihood that a mental health condition would prevent you from being able to attend work.
Be aware that if you have discussed mental health issues with your GP, attend counselling or undertaken treatment for depression or anxiety, that it may negatively impact your future insurability.
A lot of the insurers publish information to say that they are not heavy-handed when assessing an application with a history of mental health conditions. For example, they will make statements such as “seeing a councillor won’t necessarily negatively impact the assessment”. However, the reality is a lot different to the glossy brochures. In our recent experience, the mere appearance of possible mental health issues will attract an exclusion at a minimum. Given that almost half of the total population (45.5%) experience a mental health condition at some point in their lifetime, the insurance companies approach is worrying. It could discourage people from proactively seeking treatment or professional help and that would be a very poor outcome (side-effect).
If you have existing insurance cover
If you have existing cover that you are considering cancelling or reducing, think about this very carefully. You should assume that you may not be able to replace this cover in the future, especially if you have suffered any heath conditions since the policy was established.
Its best to get cover in your 30’s
The upshot of this is that it is best to arrange cover when you are younger, when you have a clean bill of health. That is a better approach than waiting until you are closer to, or in your 40’s (or even 50’s), as it’s more likely an insurer will find a reason to add exclusions to your policy.
Some exclusions don’t have a big impact on policy coverage
Not all excursions are equally bad. For example, an exclusion in relation to a known medical issue is less of a concern as you can proactively manage that condition and reduce the probability it will impair your ability to work.
However, for example, a back (lumber) exclusion can materially reduce policy’s coverage. For example, if you injure yourself in a car accident the insurer might use the back exclusion to avoid or limit the benefit payable.
Think about default cover in an industry super fund
Large industry super funds have group policies which means they arrange one insurance policy that covers all the members of the super fund. As such, they can typically have automatic acceptance limits. This means that you only need to complete a very simple medical questionnaire if the amount of cover you are seeking is under a predetermined limit (e.g. around $800k for Life & TPD and less than $10k per month for income protection cover).
Make sure you seek professional advice
Determining the right amount of cover to take out, making sure your policies are structured tax-effectively, understanding the quality of the policy and then navigating the underwriting process are all things we do every day. If you are going to take out insurance, you must ensure you are getting value for money meaning if you need to make a claim, you want to be as certain as possibly that they will pay it! There’s no point having insurance if you are never going to be able to make a successful claim. Most people do not have the experience and knowledge to do this without getting professional advice. So, do not hesitate to reach out if we can be of any assistance in this regard.