Reports that life insurance in superannuation is not suited to mental health conditions is “demonstrably incorrect” and runs a risk of telling consumers that someone with a mental health condition they cannot claim a total and permanent disability (TPD) benefit, which is incorrect, according to a lawyer.
Berrill and Watson Lawyers principal, Paul Watson, pointed to a tweet from Super Consumers Australia that said: “The practical impact is people with a mental health condition can’t claim on this insurance when they need it most. It’s clear these terms disadvantage people with mental health claims and are designed to protect insurer profits”.
Watson said this was a “dangerous and incorrect message to send to people, particularly when the statistics show the reverse to be true”.
“What isn’t clear from that tweet, or from the headline in the article it was referring to (Life insurance isn’t suited to mental health conditions) is that the tweet and the article were in relation to activities of daily living [ADL] definitions which relate to only 4% of claims,” he said.
“These headlines and commentary run the real risk of telling consumers that someone with a mental health condition is unlikely to be able to claim a TPD benefit.”
Watson noted that according to Australian Prudential Regulation Authority (APRA) data, in 2018 the life insurance industry paid out $4.4 billion dollars in lump sum claims to 26,150 claimants, and recent Financial Services Council data found that mental illness was the most common TPD claim.
Watson said the life insurance industry should get rid of ADL definitions in group super arrangements, but people needed to understand the real value of group insurance arrangements in super.
“People who are suffering from a mental health condition should be encouraged to have their claims assessed,” he said.
“Whilst there is a need to call out the poor outcomes that ADL definitions deliver, there is also a need to ensure that the public discourse does not confuse people who are already having a difficult time with a mental illness.
“…it is important to recognise that TPD insurance more broadly has been successful in providing financial support to people with mental health conditions.”
An article by Choice pointed to the Australian Securities and Investments Commission (ASIC) review of TPD insurance in super that it said found “it wanting in a number of areas, such as the high rate of declined claims for people with mental health conditions”.
Watson said the report found that TPD claims assessed under an ADL definition had an average decline rate of 60%, compared with a decline rate of 10% for the more regular “unable to work” definition.
“The issue of the use of ADL definitions in default superannuation insurance policies has been a problem that consumer representatives have called out for years,” he said.