Mental health will be an issue most advisers will have to deal with at some time as life insurance can play an important part in recovery.
While many people may look to their health insurance, Rachel Leong from BT Financial Group writes, life insurance can offer a more holistic approach around immediate and ongoing support, and rehabilitation.
This does require advisers to be aware of what features and benefits many existing policies offer so they can consider the implications for clients, and provide valuable assistance at claim time.
Affecting around one in five Australians1 and costing billions in health care, mental illness is common and has wide-ranging implications for the people who suffer from it as well as their loved ones.
The substantial financial costs relating to mental health-related services (around $8.5 billion as of 2014/15) go towards public hospital, community and specialised private hospital care; as well as Medicare-subsidised services, psychologist services and subsidised prescriptions2. In addition to these direct financial costs, there are other less tangible but significant impacts – mental illness may reduce the chances of someone completing school, obtaining effective employment, or having a good quality of life.
There is government support available, such as:
- Clinical care and community support
- Medicare rebates for mental health care services provided by general practitioners (GPs), psychiatrists, psychologists and eligible social workers and occupational therapists, and
- The disability support pension.
However, navigating the public system can be difficult particularly at a time when clients and their families may be facing a very challenging time in their lives. Accessing community services, potential cost gaps for counselling sessions and meeting eligibility criteria are some of the challenges faced by those with mental health conditions.
Potentially, private health cover could be used to cover some of the costs that are not government-funded. However, there may be additional expenses such as excess or co-payments, as well as amounts above the Medicare Benefits Schedule fee, unless treatment is under a ‘no gap’ arrangement.
Life insurance may provide a more holistic level of cover. The implications of mental illness on life insurance cover are discussed below.
Eligibility for cover
Depending on circumstances, pre-existing (or prior) mental health disorders may impact the individual’s ability to obtain life insurance cover. The availability of cover varies across insurers as well as the approach taken for one form of mental illness over another. If cover is offered, loadings or mental health exclusions may apply.
If the client is already unable to work due to their mental condition, total permanent disability (TPD) cover would generally not be offered. An application for trauma and term life cover will not automatically be declined simply on the grounds that the client is unable to work, but it is likely that comprehensive information would be required regarding the client’s history, current condition, prognosis and circumstances of any existing claim (e.g. income protection) to determine the availability or terms of cover.
The links between mental health, self-harm and suicide are sadly very clear. The suicide rate for people with a mental illness is at least seven times higher than that for the general population of Australia3. Self-harm is often a sign that the person needs help for a mental health problem4. Hence, it is very important seek help from a GP or other health professional so that they can make an assessment and diagnosis, as well as discuss a potential treatment plan. Treating the underlying cause may help reduce the impulse to self-harm.
While discussing life insurance exclusions related to suicide and self-harm can be very confronting, it can nonetheless be extremely important to explain to clients how these work in practice. Lump sum and income protection policies usually exclude suicide and self-inflicted injuries. Suicide will generally be excluded for 12 or 13 months from policy commencement for death cover, and one reason is to deter someone from obtaining a policy with the purpose of ending their life. Self-inflicted injuries are often excluded for all other cover types for the life of the policy.
There are a number of policy features and benefits that may be helpful for clients who suffer from a mental disorder, such as:
- Flexible waiting period requirements (‘day 1’ partial, and ability to return to work during the waiting period). This is particularly useful for mentally ill clients whose symptoms and ability to work may vary over the course of the waiting period.
- Three-tier total disability definitions (10 hours, 1 duty, loss of income). While all of these definitions are useful when making an income protection claim for a mentally ill client, the loss of income provision can be of particular interest to clients earning larger incomes, who need to change to a lower paying role. The 10-hour definition allows the individual to stay connected with work, which mental health advocates agree is an important element of recovering from a mental health disorder.
- Partial disability payments, allowing smoothing of total income during periods of employment fluctuation in accordance with the individual’s capacity each month.
- Future insurability benefit, allowing an increase to the sum insured upon a life event, without medical underwriting. The more events covered, and the later the expiry age of this policy benefit, the more generous the policy.
- Counselling and rehabilitation benefits.
Mental illness is the second most common cause of claim for income protection and TPD policies, with the most common cause being musculoskeletal conditions5.
It has been shown that there is a clear link between an individual’s return to work, and their return to wellness. Health support teams that include rehabilitation psychologists working at life insurers can be critical to a client’s recovery and are best placed to determine what the optimal course of action is. Progressive life insurers focus on the client’s wellbeing and wellness when providing holistic solutions, and do not limit themselves only to the assessment of claim payments.
Given the prevalence of mental illness in Australia, it is likely that advisers will need to consider the implications for their clients at some point. Support and services can be fragmented, therefore the right combination of life and disability insurance is essential. There are many benefits within life insurance policies appropriate for all types of clients, but they may become invaluable when assisting clients with a mental disorder.
- Approximately one in five Australians aged 16-85 experience anxiety, affective and/or substance use disorders over a 12-month period. ABS 4326.0 – National Survey of Mental Health and Wellbeing: Summary of Results, 2007.
- AIHW (Australian Institute of Health and Welfare) 2016. Health expenditure Australia 2014–15, Health and welfare expenditure series no. 57. Cat. no. HWE 67.
- The Risk Store, Industry Stats 2015
Rachel Leong is the Product Technical Manager for Life Insurance at BT Financial Group