Mental health and insurance – what you need to know

By Helen Baker

June 11 2020
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Claiming income protection insurance while suffering from a mental health issue can be challenging, but it doesn’t have to be, writes Helen Baker.

I’ve helped many clients access their income protection insurance for mental health reasons – people who are going through divorce, post-divorce, widowed, employment issues or had a business collapse.

Having a mental health issue is a bit different to having a physical injury, so filling out forms and taking calls can be difficult. This is where you need to draw on a support team. According to Malcolm Turnbull, the average salary was $80,000. Multiplied over 40 years, excluding CPI and bonuses, that’s $3.2 million. Possibly your biggest asset.

Income protection allows you to claim for mental and physical health issues. Many people have this insurance and don’t realise it. It can be within your super or through an employer also known as “salary continuance”.

Check you have income protection insurance.

The government brought out legislation last year requiring you to “opt in” to retain your cover as opposed to “opt out”. The danger is many people don’t open their superannuation fund mail/email. If you don’t keep up with all the requirements, your insurance may lapse.

Every superannuation fund is different. Some require opt-in regularly, others once only, others require active accounts i.e. you have to contribute. Others require balances in your superannuation at $X to keep your insurance alive.

This can be quite difficult if you have multiple funds. However, don’t consolidate. Danger, Danger – High Voltage! Remember that song? If you consolidate, it is likely your insurance is gone.

What if I change employers?

Be aware, when changing employers that you may lose insurance you had with your former employer. Check what happens to your insurances before you leave.

Understand the difference between industry, super and retail policies.

Certain superannuation funds have default cover, and many people just assume that must be enough. Default cover in one industry fund paid $850/month, which wouldn’t even cover most people’s mortgages or rent, let alone their salary.

Every policy has a waiting period and benefit period. Waiting periods are generally 30, 60, 90 days. Most industry funds being 90 days payable for two years. What do you do after the two years?

Retail funds waiting periods are 30, 60, 90 days or two years payable to age 65 or 70.

It is possible to pay insurance premiums from your superannuation even with a retail fund if you’re having cash flow issues.

You can claim retrospectively

There is usually a two-year window to make income protection insurance claims. Providing you have the necessary evidence you may be able to go back and make a claim. I’ve assisted clients after a divorce or family death who took time off and didn’t realise they were entitled to claim. We often don’t know what we don’t know, so being able to get a cash injection to reimburse from a hard time is valuable.

Get help with your claim

You are not in this alone. Don’t stress yourself further by trying to get this done without support. Your financial adviser can help you with the claim process. We know how it works and usually this service comes with your overall package.

Several times I’ve been able to negotiate with an insurer to extend the contact from monthly to every three months, to give the client time to breathe and time to recover. It can often be more difficult for the insured and insurer to process mental health claims without professionals, that’s why it is imperative to seek help.

If you don’t have an adviser, have a friend or family help with the paperwork. Taking this pressure off can really help recovery. Alternatively, seek legal advice.

Almost all income protection policies only cover you for health-related issues, but there are some private health insurance and funds who have offered redundancy. If you’ve been made redundant because of the pandemic and hold one of those policies, you should check the fine print. Pandemics are often an exclusion though. The devil is in the detail.

I say if you even think you have a claim, check it out. They can only say no.

Helen Baker is a licensed Australian financial adviser and author.

Note: This is general advice only and you should seek advice specific to your circumstances

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