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Last Updated on 6 November 2020

Is Mental Illness Covered by Income Protection?

Key Points
  • Mental health conditions are the second-most common cause of income protection claims in the Australian insurance industry.
  • At least 45 per cent of Australians will experience a mental health issue at some point in their lives. (SANE, 2019)
  • Being currently afflicted or having suffered a mental health in the past doesn’t necessarily mean you won’t be able to get income protection. But whether mental health-related claims will be covered or not in your policy is another story.
  • Mental health is a difficult subject for underwriters due to its difficulty of proof, its unpredictable nature and, some believe, a long-standing stigma.
  • Mental health advocates are currently working on making the system fairer for all.
  • There are steps you can take to ensure you have the highest level of financial protection for mental illness-related disruptions to your ability to work, both within and outside of an income protection insurance policy.


Will a life insurer cover your mental illness?

Nearly half of all Australians will have a mental health problem at some point in their lives. And with 1 in 5 new Australians being diagnosed every year, mental illnesses are the third leading cause of disability in the nation.

If you happen to belong to this group, you’re not alone.

But what do you do when this starts to affect your work? Are you still eligible to receive income protection, like your friend who broke her leg?

After all, a mental illness can be just as debilitating as a physical injury, or worse. The answer to this question is complex.

Applicants are generally assessed individually. Whether your insurers will pay out when mental illness strikes depends on multiple factors, such as:

  • If you’ve been treated or sought medical advice for a mental illness before taking out a new policy with a new insurer.
  • If you have a mental health exclusion on your policy, based on your past medical history, or if your policy documents state that, in your case, mental health is covered.
  • If your insurer or type of policy covers mental health at all or puts a blanket ‘no’ on all mental health conditions.
  • If your income protection policy covers illness (including mental illness), or only accidental injury or other forms of cover.

Additional to all of this complexity, some insurers will only pay out for a limited time in claims related to mental health. For example, the big life insurer TAL only allows a maximum Benefit Period of 2 years for certain mental health related claims.

This means that should a mental illness take you out of action, your insurer may only pay out for a limited amount of time.

Your insurer may also want to know the severity and nature of an illness, the number of episodes, how long those episodes lasted for, whether you’ve taken any time off work due to the illness, and whether you’ve properly recovered ever since.

The easiest way to find out if your insurer will cover you for mental illness and for how long is to read the product disclosure statement (PDS) and any other insurance documents the insurer sent you.

You can also call your insurer and directly ask a representative this question, however the answer may not necessarily be an easy ‘yes’ or ‘no.’

If you don’t have income protection yet, you’ll likely need to tell an insurance company about any mental health conditions you either currently have or have had in the past when you apply. Keep in mind there’s no point in omitting information. If you ever have to make a claim, the insurer could do some digging into your medical records, discover the truth, and then refuse your claim on those grounds. So it’s best to tell your insurer the truth.

Depending on your personal situation, the insurer may decide to insure you but add a premium loading (making your insurance more expensive) or add a mental health exclusion.

This means that even if you’ve only ever seen a psychologist once (due to grief over the death of a loved one, for example, or another one-off type of circumstance), your insurer may have the power to refuse paying out on a claim if you later become diagnosed with a seemingly unrelated mental health condition, like schizophrenia or bipolar disorder.

This kind of situation may sound unfair, but there are a few reasons for this.

Why is mental health a sore spot for insurers?

Insurance companies often find it difficult to deal with the complexities of mental health.

Even psychologists, themselves, don’t always know exactly how one mental health condition can lead to or worsen another. This means that two issues that are seemingly unrelated could be more closely linked than meets the eye.

Also, mental health is different to physical health in that it can’t as easily be proven with brain scans or blood-work tests. Its diagnosis is solely dependent on a conversation with your healthcare professional, and that can be an ever-changing, complicated conversation over time.

This ambiguity presents life insurers with a higher risk in covering you. Because of this, they’ll want to look closely at your medical records to ensure a fair decision is made in regards to your coverage and premiums.

Unfortunately, this means that those Australians who suffer from a mental health crisis unexpectedly may not receive income protection cover when they really need it.

In other worst case scenarios, they may need to pay highly inflated premiums for a policy or they could even get denied for income protection cover in the first place.

But it’s important to remember that the type of mental health coverage you’re eligible for depends on your unique history and the insurer you’re dealing with.

In any case, it’s worth shopping around to see which income protection insurers are willing to cover those with mental health issues.

Could things get better?

Over time, many social commentators and healthcare professionals have lamented the difficulties the mentally ill have in accessing income protection. As a result, various groups are trying to make changes in the current system.

Mental health advocacy group BeyondBlue is actively being consulted for advice, and the claims process has been reportedly undergoing a lot of positive change. The federal government has also jumped on board to improve access to mental healthcare by funding allied health such as psychology and supporting organisations such as the headspace National Youth Mental Health Foundation.

Workplace-focused mental health organisation SuperFriend has seen a sharp increase in allied health professionals working inside insurance companies. And the more professionals who deal with mental health join hands with insurance companies, the better the outcomes for customers dealing with mental health issues.

The stigma may not be down to zero, but it’s clear that it’s decreasing over time.

AIA published a report back in August 2013 that said group insurers pay out more than $160 million a year in mental illness-related income protection and TPD claims. This figure has likely increased over time, with more and more positive advocacy groups and everyday voices making a concerted effort together.

General advice

Under the National Employment Standards, most full-time employees are entitled to 10 whole days of paid personal leave (you might know this as sick leave.) The Fair Work Ombudsman has publicly stated that employees should take this paid sick leave if they are unable to work due to illness or injury. According to Fair Work, this definitely can include stress.

If you need time off urgently for making doctors’ appointments, taking rest at home and reassessing your mental health, know that you are within your rights to do so without losing any pay (provided you haven’t already used up all your sick leave.)

Sometimes, a short conversation with your employer can do the trick. However, this can be risky depending on your relationship with your employer and the kind of attitude they hold towards mental health issues. You are not obliged to tell your employer specific details, but if you feel comfortable, letting them know you are mentally unfit to work for the time being may offer you some much needed respite. You could even tell your employer that you simply need ‘a mental health day,’ which could help to open up the conversation.

Good employers will take your health seriously and ensure you’re being offered the right support. Many larger companies and corporations have an Employee Assistance Program (EAP), which allows employees free, confidential access to a counsellor.

Under the Fair Work Act 2009, an employer is not allowed to take adverse action against you based on your mental health.

If you believe your mental illness is actually being caused by your work, you may be eligible for workers’ compensation. This is not related to income protection insurance, so it could protect you in the random case you fall ill with stress but have not sought coverage prior.

To have your claim approved, you would need to prove that your condition was caused by your work in some way. For example, perhaps you witnessed a traumatic event or you were bullied by a superior. Sometimes, making a good claim requires seeing expert legal advice.

But, generally speaking, the highest form of protection you can obtain is a comprehensive, underwritten income protection insurance policy. It’s worth looking into, to ensure your income is sorted should your mental health ever take a dip over time. The easiest way to get started is by comparing the different policies on offer to find out which ones cover mental health, what else they cover, and how much they cost.

Unlike picking up a quick cup of coffee or a new pair of shoes, shopping for income protection is complicated. Whether you’re worried about inadequate cover, hidden fees, or simply have no idea where to start, you can find some of the most renowned income protection policies in Australia with our handy comparison tool. The tool compares policies from a panel of trusted Australian life insurers to provide you with quotes based on your individual needs and budget.

We hope this guide, along with our comparison tool provides you with clarity and peace of mind in regards to your income protection options—you deserve cover that has your back.

Extra tips

  • Superannuation accounts can contain extra insurance perks, like life cover and income protection, often unbeknownst to the account holder. In fact, most super accounts provide automatic insurance cover for total and permanent disability (TPD.) This pays a lump sum benefit if you can no longer work due to injury or illness, including a psychological illness. This type of insurance isn’t underwritten in the same way as direct insurance policies. It can even cover claims for conditions that existed before you joined the super fund. However, it’s essential to check the terms and conditions on this kind of product, as it’s possible that it’s not comprehensive or set up the way you’d like it to be.
  • If you take out a policy, always read the PDS fully in order to understand how the insurer defines a mental health illness if there are any exclusions or extra premiums that apply. Sometimes, the information won’t seem clear. In this case, give your insurer a call to discuss the details. It’s better to be safe than sorry.
  • If you’ve just recently started or about to start work with a new employer, be careful if they ask you to change your super account. You may have insurance benefits in your existing super that could be wiped out overnight should you make the transition.
  • Always remember that mental health conditions are real-life illnesses that can affect anyone at any time. There is no need to feel ashamed should you be struck down with depression, anxiety, stress or another mental health-related condition. If you feel like you can’t work at the moment and need some urgent support, know that help is out there.
  • Initially, you can always use some of your personal leave straight away, to give yourself time to get the ball rolling.

Please visit the Beyond Blue website for more information or give the friendly advisers a call on (03) 9810 6100 from Monday to Friday during business hours (AEST). For more urgent crises, the expert team at Lifeline are available to answer your calls and offer free support 24 hours a day on 13 11 14.

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